UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File No. 1-06620

GRIFFON CORPORATION(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

11-1893410(I.R.S. Employer
Identification No.)100 Jericho Quadrangle, Jericho, New York(Address of Principal Executive Offices)

11753(zip code)(516) 938-5544Registrant's telephone number, including area code:


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on
which registeredCommon Stock, $.25 par value

New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter.
Approximately $230,000,000 as of March 31, 2008.

Indicate
the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 59,275,870 shares as of December 11, 2008.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III(Items 10, 11, 12, 13 and 14). Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934.



---





PART I

Item 1.    Business

The Company

Griffon Corporation ("Griffon" or the "Company"), headquartered in Jericho, New York, is a diversified holding company consisting of
three distinct business segments:



In
fiscal 2008, the Company substantially strengthened its balance sheet by refinancing its senior debt and by raising $241 million in gross proceeds from the sale of its common
stock. The latter transaction was effected through a common stock rights offering, along with an investment by GS Direct, L.L.C. ("GS Direct"), an affiliate of Goldman Sachs. The Company intends to
use such proceeds for general corporate purposes and to fund its growth.

As
a result of the downturn in the residential housing market, in fiscal 2008, the Company exited substantially all of the operating activities of its Installation Services segment. The
Installation Services segment sold, installed and serviced garage doors, garage door openers, fireplaces, floor coverings, cabinetry and a range of related building products primarily for the new
residential housing market. Operating results of substantially all of the Installation Services segment have been reported as discontinued operations in the consolidated statements of operations for
all periods presented herein, and the Installation Services segment is excluded from segment reporting (see Note 2 to Notes to Consolidated Financial Statements).

The
Company was incorporated on May 18, 1959 under the laws of the State of New York. It was reincorporated in Delaware in 1970 and its name was changed to Griffon Corporation in
1995. The Company makes available, free of charge through its website atwww.griffoncorp.com, its annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after such material is filed with or furnished to the Securities and Exchange Commission. For information regarding revenues, profit and total
assets of each segment, see Note 8 to Notes to Consolidated Financial Statements.

Electronic Information and Communication Systems ("EICS")

The Company, through its wholly-owned subsidiary, Telephonics Corporation ("Telephonics" or the "EICS" segment), specializes in
advanced electronic information and communication systems for defense, aerospace, civil, industrial, and commercial applications domestically and in certain international markets. Telephonics designs,
manufactures, sells, and provides logistical support for aircraft communication systems, radar, air traffic management, information and command and control systems, identification friend or foe
("IFF") equipment, Integrated Homeland Security Systems and custom, mixed-signal, application specific integrated circuits. Telephonics is a leading supplier of airborne maritime surveillance radar
and aircraft intercommunication management systems, the segment's two largest product lines. In addition to its traditional defense products used predominantly by the United States Government, in
recent years Telephonics has adapted its core technologies to

1

---



products
used in international markets and has expanded its presence in both non-defense government and commercial markets. In fiscal 2008, approximately 70% of the EICS segment's sales
were to the United States Government and agencies thereof, 24% to international customers and 6% to commercial customers. The segment employs approximately 1,300 employees.

Conflicts
involving the country's military have also tended in recent years to require deployment and significant coordination between air, sea and ground forces, often in distant parts
of the world, underscoring the evolution and growing importance of electronic systems that provide surveillance, tracking, communication and command and control. The Company believes that Telephonics'
advanced systems and sub-systems are well positioned to address the needs of an electronic battlefield with emphasis on the generation and dissemination of timely data for use by highly
mobile ground, air and naval forces. Telephonics anticipates that the need for such systems will increase in connection with the increasingly active role that the military is playing in the war on
terrorism, both at home and abroad. In order to expand its current market share, Telephonics has increasingly focused its technologies and core competencies in the Homeland Security and Air Traffic
Management market segments.

Programs and Products

Telephonics is generally a first-tier supplier to prime contractors in the defense industry such as Boeing, Lockheed
Martin, Northrop Grumman and Sikorsky Aircraft. With the significant contraction and consolidation that has occurred in the U.S. and international defense industry, major prime contractors worldwide
are relying on smaller, key suppliers to provide advances in technology and greater efficiencies to reduce the cost of major systems and platforms. Telephonics believes that this situation creates an
opportunity for established,
first-tier suppliers to capitalize on existing relationships with major prime contractors and play a larger role in the foreseeable future.

Telephonics,
under a primary contract with Syracuse Research Corporation, had been manufacturing counter-IED devices to support the Warlock Duke program. The program entailed
the achievement of high rate production, in an accelerated timetable, of equipment designed to defeat the roadside bomb threats that our armed forces face in certain regions of the world. The program
resulted in sales of $18 million in 2008, $190 million in 2007 and $143 million in 2006. Telephonics does not presently anticipate significant revenues, if any, under this
contract in the fiscal 2009 or beyond.

Telephonics
has directed more of its resources towards Homeland Security Systems and was selected by Boeing Company in 2007 to participate in the Secure Border Initiative net (SBInet)
program. Additionally, Telephonics was recently awarded a contract from the U.S. Customs and Border Protection for mobile surveillance systems as part of the Homeland Security department's initiative
to protect both the U.S. Northern and Southern borders. These two programs represent strategic advances for the Company by allowing it to expand its core technical expertise into the Homeland Security
market segment. The expectation is that these recent awards will generate significant future growth opportunities for Telephonics.

Telephonics'
core products, both communications and surveillance and detection equipment, are utilized by the U.S. Navy's mission critical initiatives and are installed on both the
MH-60R and MH-60S utility helicopter platforms. Recently, Telephonics Corporation was awarded additional follow-on contracts for the development of increased
capabilities and functional enhancements to the Multi-Mode Radar (MMR) for the U.S. Navy's MH-60R Maritime Strike Helicopter. The program, called Automatic Radar Periscope
Detection and Discrimination (ARPDD), will develop a next-generation Telephonics AN/APS-147 multi-mode radar that will feature new capabilities to detect very
small, low visibility targets using advanced algorithms and additional hardware and software improvements. The Company believes ARPPD will bring unprecedented performance against these most difficult
targets and enable new mission capabilities. This capability sets the AN/APS-147 apart from every other maritime surveillance radar available on the market today, and opens a number of
additional opportunities for Telephonics.

2

---



Revenues
of the EICS segment were approximately 29% of the Company's consolidated net sales from continuing operations in 2008, 35% in 2007 and 29% in 2006.

The
table below lists some of the major programs Telephonics currently participates in:

Customer

Program

ProductThe Boeing Company

U.S. Air Force C-17A Cargo Transport; U.S. Air Force C-130 Hercules Air Transport Airborne Warning and Control System (AWACS); U.S. Navy F/A-18/E/F Fighter/Attack Aircraft

Intercommunications Management SystemsAWACS

Identification Friend or Foe SystemSecure Border Initiative net (SBInet)

Ground Surveillance RadarGeneral Dynamics, Canada

Maritime Helicopter Project

Maritime Surveillance RadarBAE Systems

U.K. NIMROD Royal Maritime Patrol Aircraft

Intercommunications Systems IntegrationNorthrop Grumman

Joint-STARS Surveillance Aircraft

Intercommunications Management SystemsU.S. Coast Guard HU-25 Aircraft

Maritime Surveillance RadarLockheed Martin Corporation

U.S. Navy MH-60S/MH-60R Helicopters U.S. Navy P-3 Aircraft

Intercommunications Management SystemsU.S. Navy MH-60R Helicopter U.S. Coast GuardCN 235 Maritime Patrol Aircraft

Maritime Surveillance Radar and Identification Friend or Foe SystemMacDonald Dettwiler

Canadian Forces' CP-140 Aurora Aircraft Modernization Program

Maritime Surveillance Radar and Identification Friend or Foe SystemSikorsky Aircraft Company

S-70B Maritime Surveillance Helicopter

Maritime Surveillance RadarUH-60M Blackhawk Helicopter Upgrade Program

Management SystemsU.S. Customs and Border Protection

Mobile Surveillance Systems

Integrated Surveillance Systems


Backlog

The funded backlog for the EICS segment was approximately $335 million at September 30, 2008, compared to
$309 million at September 30, 2007. Approximately 76% of the current backlog is expected to be filled during fiscal 2009. The increase in backlog is primarily attributable to additional
funding received for the MH-60R program.

3

---



Sales and Marketing

Telephonics has technical business development personnel who act as the focal point for its marketing activities and sales
representatives who introduce its products and systems to customers worldwide.

Telephonics
participates in a range of long-term defense and non-military government programs, both domestically and internationally. Telephonics has developed a
base of installed products in these programs that generate significant recurring revenue and retrofit, spare parts and customer support sales. Due to the inherent complexity of defense electronics,
Telephonics believes that its incumbent status on major platforms gives it a competitive advantage in the selection process for the upgrades and enhancements that have characterized defense
electronics procurement in recent years. Furthermore, Telephonics believes that with programs such as the U.S. Navy's MH-60R helicopter transitioning to full scale production concurrently
with other radar and intercommunications systems production programs underway, Telephonics will have a competitive price advantage on bids for new business.

In
recent years, the segment has also significantly expanded its customer base in international markets. Telephonics' international projects include a contract with MacDonald Dettwiler
as part of Canada's CP-140 Aurora Aircraft Modernization program and a number of contracts with the Civil Aviation Authority of China for air traffic management systems for Mainland China.

Research and Development

This segment regularly updates its core technologies through internally funded research and development. The selection of these R&D
projects is based on available opportunities in the marketplace, as well as input from Telephonics' customers. The Company believes that Telephonics is a technological leader in its core markets and
intends to pursue new growth opportunities by leveraging its systems design and engineering capabilities and incumbent position on key platforms.

In
addition to products for defense programs, Telephonics has also applied its technology to produce products for commercial applications such as airborne weather and search radar air
traffic control systems. Telephonics believes that its reputation for innovative product design and engineering capabilities, especially in the areas of voice and data communications, radio frequency
design, digital signal processing, networking systems, inverse synthetic aperture radar and analog, digital and mixed-signal integrated circuits, has enhanced its ability to secure, retain and expand
its participation in defense programs and commercial undertakings. Telephonics is capable of meeting a full range of customer requirements including system requirements definition, product design and
development, manufacturing and test, integration and installation, and logistical support.

Telephonics'
objective is to anticipate the needs of its core markets and to invest in research and development in an effort to provide solutions well in advance of its competitors. In
an effort to ensure customer satisfaction and loyalty, Telephonics often designs its products to exceed customers' minimum specifications, providing its customers with greater performance and
flexibility. Telephonics believes that these practices engender increased coordination and communication with its customers at the earliest stages of new program development, thereby increasing the
likelihood that its products will be selected and integrated as part of a total system solution.

Competition

The EICS segment competes with major manufacturers of electronic information and communication systems that have greater financial
resources than the Company, and with several smaller manufacturers of similar products. Telephonics competes on the basis of technology, design, quality, price and program performance.

4

---



Garage Doors

The Company believes that its wholly-owned subsidiary, Clopay Building Products Company ("Clopay Building Products" or "Garage Doors"
segment), is the largest manufacturer and marketer of residential garage doors and among the largest manufacturers of commercial sectional doors in the United States. The Company's building products
are sold under Clopay®, Ideal Door® and Holmes® brand names through an extensive distribution network throughout the United States. The Company estimates that the
majority of Garage Doors' net sales are from sales of garage doors to the home remodeling segment of the residential housing market, with the balance from the new residential housing and commercial
building markets. The Garage Doors segment employs approximately 1,500 employees. Sales into the home remodeling market are being driven by the continued aging of the housing stock and the trend of
improving home appearance.

According
to industry sources, the residential and commercial sectional garage door market for 2007 was estimated to be $2.0 billion. The Company believes the market has declined
in 2008. Over the past decade, there have been several key trends driving the garage door industry, including the shift from wood to steel doors and the growth of the home center channel of
distribution. The Company
estimates that over 90% of the total garage door market today is steel doors. Superior strength, reduced weight and low maintenance have favored the steel door. Other product innovations during this
period include insulated double-sided steel doors, new springing systems, sophisticated window options, improved safety features, and product designs with increased aesthetic appeal.

The
garage door industry has been negatively impacted by the crisis in the residential housing market. Key statistics are poor and in some cases, getting worse. According to the National
Association of Home Builders, current data compared to the prior fiscal year show new home starts down 31%, new home sales down 33% and a 10.4 month supply of new homes. Existing home sales are
essentially flat and the inventory of existing homes now stands at a 10-month supply.

Products and Services

Clopay Building Products manufactures a broad line of residential sectional garage doors with a variety of options at varying prices.
Clopay Building Products offers garage doors made primarily from several materials, including steel and wood, and also sells related products, such as garage door openers, manufactured by third
parties.

Clopay
Building Products also markets commercial sectional doors. Commercial sectional doors are similar to residential garage doors, but are designed to meet more demanding performance
specifications.

Revenues
of the Garage Doors segment were approximately 34% of the Company's consolidated net sales from continuing operations in 2008, 36% in 2007 and 42% in 2006.

Sales and Marketing

Clopay Building Products distributes its products through a wide range of distribution channels, including installing dealers,
retailers and wholesalers. Clopay Building Products owns and operates a national network of 49 distribution centers. The Company's building products are sold to approximately 2,000 independent
professional installing dealers and to major home center retail chains, including The Home Depot, Inc. and Menards, Inc. Clopay Building Products maintains strong relationships with its
installing dealers and believes it is the largest supplier of residential garage doors to the retail and professional installing channels.

Over
the past decade, an increasing number of garage doors have been sold through home center retail chains such as The Home Depot, Inc. These home centers sell garage doors to
the do-it-yourself consumer, the small residential and commercial contractor, as well as installed residential doors and operators for the rapidly growing
do-it-for-me consumer segment. Distribution through the retail

5

---



channel
requires different capabilities and skills than those traditionally utilized by garage door manufacturers. Factors such as immediately available inventory, national distribution, national
installation services, point-of-sale merchandising and special packaging are all important to the retailer.

Clopay
Building Products is the principal supplier of residential garage doors throughout the United States and Canada to The Home Depot, Inc., with Clopay® brand
doors being sold exclusively to this customer in the retail channel of distribution. Sales of the Clopay® brand outside the retail channel of distribution are not restricted. The segment's
largest customers are The Home Depot, Inc. and Menards, Inc. The loss of either of these customers would have a material adverse effect on the Company's business. Clopay Building
Products distributes its garage doors directly to customers from its manufacturing facilities and through its distribution centers located throughout the United States and Canada. These distribution
centers allow Clopay Building Products to maintain an inventory of garage doors near installing dealers and provide quick-ship service to retail and professional dealer customers.

Manufacturing and Raw Materials

Clopay Building Products currently operates four garage door manufacturing facilities. A key aspect of Garage Doors' research and
development efforts has been the ability to continually improve and streamline its manufacturing processes. Clopay Building Products' engineering and technological expertise, combined with its capital
investment in equipment, generally has enabled it to efficiently manufacture products in large volume and meet changing customer needs. Its facilities use proprietary manufacturing processes to
produce the majority of its products. Certain of its machinery and equipment are internally modified to achieve its manufacturing objectives. These manufacturing facilities produce a broad line of
high quality garage doors for distribution to professional installer, retail and wholesale channels.

The
principal raw material used in Clopay Building Products' manufacturing operations is galvanized steel, the price of which trended slightly downward in fiscal 2007 before increasing
dramatically in fiscal 2008. The Company also utilizes certain hardware components, as well as wood and insulated foam. All of these raw materials are generally available from a number of sources.

Research and Development

Clopay Building Products operates a technical development center where its research engineers work to design, develop and implement new
products and technologies and perform durability and performance testing of new and existing products, materials and finishes. Also at this facility, the process engineering team works to develop new
manufacturing processes and production techniques aimed at improving manufacturing efficiencies.

Competition and market conditions

The garage door industry is characterized by several large national manufacturers and many smaller regional and local manufacturers.
Clopay Building Products competes on the basis of service, quality, price, brand awareness and product design.

Clopay
Building Products' brand names are widely recognized in the building products industry. Clopay Building Products believes that it has earned a reputation among installing dealers,
retailers and wholesalers for producing a broad range of high-quality doors. Clopay Building Products' market position and brand recognition are key marketing tools for expanding its
customer base, leveraging its distribution network and increasing its market share.

6

---



Specialty Plastic Films

The Company, through its wholly-owned subsidiary Clopay Plastic Products Company ("Clopay Plastic" or "Specialty Plastic Films"
segment), develops and produces specialty plastic films and laminates for a variety of hygienic, health care and industrial uses in domestic and certain international markets. Clopay Plastic's
products include thin gauge embossed and printed films, elastomeric films and laminates of film and non-woven fabrics. These products are used primarily as moisture barriers in disposable
infant diapers, adult incontinence products and feminine hygiene products, as protective barriers in single-use surgical and industrial gowns, drapes and equipment covers, as packaging for
hygienic products, house wrap and other products. Clopay Plastic's products are sold through a direct sales force primarily to multinational consumer and medical products companies. The segment
employs approximately 1,200 employees worldwide.

The
segment's major customer is Procter & Gamble, with whom Clopay Plastic enjoys a long and successful relationship. Clopay Plastic supplies Procter & Gamble with a
variety of products used primarily for its infant diapers, both domestically and internationally.

The
segment of the specialty plastic films industry in which Clopay Plastic participates has been affected by several key trends over the past five years. These trends include the
increased use of disposable products in developing countries and favorable demographics, including increasing immigration, in the major global economies. Other trends representing significant
opportunities for manufacturers include the continued demand for new advanced products such as cloth-like, breathable, laminated, and printed products and the need of major customers for
global supply partners. Notwithstanding the positive trends affecting the industry, design changes by Procter & Gamble for its infant diaper products have resulted in a change in products
produced by Clopay Plastic from laminates to narrower and thinner gauged printed film. As a result, the volume of film products sold by the segment for this customer has declined. Clopay Plastic
believes that its
business development activities targeting major multinational and regional producers of hygiene, healthcare and related products and its investments in its technology development capability and
capacity increases will lead to additional sales of new and related products, minimizing the impact of this reduction.

Products

Clopay Plastic's specialty plastic film is a thin-gauge film (typically 0.0005" to 0.003") that is manufactured from
polymer resins and engineered to provide certain performance characteristics. A laminate is the combination of a plastic film and a woven or non-woven fabric. These products are produced
using both cast and blown extrusion and laminating processes. High speed, multi-color custom printing of films and customized embossing patterns further differentiate the products. Clopay Plastic's
specialty plastic film products typically provide a unique combination of performance characteristics that meet specific, proprietary customer needs. Examples of such characteristics include strength,
breathability, barrier properties, elastic properties, processibility and aesthetic appeal.

Revenues
of the Specialty Plastic Films segment were approximately 37% of the Company's consolidated net sales from continuing operations for in 2008, 30% in 2007 and 29% in 2006.

Sales and Marketing

The Specialty Plastic Films segment sells its products primarily in the United States and Europe with sales also to Canada, Central and
South America and Asia Pacific. The segment primarily utilizes an internal direct sales force, organized by customer accounts. Senior management actively participates by developing and maintaining
close contacts with customers.

The
segment's largest customer is Procter & Gamble, which has accounted for a substantial portion of Specialty Plastic Films' sales over the last five years. The loss of this
customer would have a material adverse effect on the Company's business. Specialty plastic films also are sold to a diverse group of other leading consumer, health care and industrial companies.

7

---



Clopay
Plastic seeks to expand its market presence by capitalizing on its technological and manufacturing expertise and on its relationships with major international consumer products
companies. Specifically, Clopay Plastic believes that it can continue to increase its North American sales and expand internationally through ongoing product development and enhancement and by
marketing its technologically advanced films and laminates and printed film for use in all of its markets. Clopay Plastic believes that its operations in Germany and Brazil provide a strong platform
for additional sales growth in certain international markets.

Research and Development

Clopay Plastic believes it is an industry leader in the research, design and development of specialty plastic films and laminate
products. Clopay Plastic operates a technical center where polymer chemists, scientists and engineers work independently and in strategic partnerships with its customers to develop new technologies,
products, processes and product applications. Currently, Clopay Plastic is engaged in several joint efforts with the research and development departments of its customers.

Clopay
Plastic's research and development efforts have resulted in many inventions covering embossing patterns, improved processing methods, product formulations, product applications
and other proprietary technology. Products developed include microporous breathable films and cost-effective printed films and laminates. Microporous breathability provides for moisture
vapor transmission and airflow while maintaining barrier properties resulting in improved comfort and skin care. Elastic laminates provide the user with improved comfort and fit. Printed films and
laminates provide consumers preferred aesthetics, such as softness and visual appeal. Clopay Plastic holds a number of patents for its current specialty film and laminate products and related
manufacturing processes. Clopay Plastic believes its patents are a less significant factor in its success than its proprietary know-how and the knowledge, ability and experience of its
employees.

International Operations

The Specialty Plastic Films segment has two operations in Germany from which it sells plastic films throughout Europe. One of its
German operations, Finotech, was structured as a joint venture with Corovin GmbH, a manufacturer of non-woven fabrics headquartered in Germany that is a subsidiary of BBA
Group PLC, a publicly owned diversified U.K. manufacturer. In July 2005, Clopay Plastic purchased the remaining 40% interest from BBA in a cash transaction for approximately $82 million.

In
June 2002, Clopay Plastic acquired 60% ownership for approximately $18 million in Isofilme Ltda., a manufacturer of plastic hygienic and specialty films located in Sao
Paulo, Brazil which operates under the name Clopay do Brasil. In October 2004, Clopay Plastic acquired an additional 30% of Isofilme for approximately $3.9 million and, in October 2005,
purchased the remaining 10% interest for approximately $1.3 million. In 2005 and 2006, Clopay Plastic constructed and relocated to a new facility near São Paulo. The installation
of new manufacturing capacity and capabilities was completed in conjunction with the move. Clopay do Brasil provides a platform to broaden participation in South American markets and strengthens
Clopay Plastic's position as a global supplier.

Manufacturing and Raw Materials

Clopay Plastic manufactures its specialty plastic film and laminate products on high-speed equipment designed to meet
stringent tolerances. The manufacturing process consists of melting a mixture of polymer resins (primarily polyethylene) and additives, and forcing this mixture through a computer-controlled die and
rollers to produce embossed films. In addition, the lamination process involves extruding the melted plastic films directly onto a non-woven fabric and bonding these materials to
form a laminate. Clopay Plastic also manufactures multi-color printed films and laminates. Through statistical process control methods, employees monitor and control the entire production
process.

This
segment launched a significant capital expansion program in fiscal 2003 to support new opportunities with its major customers and to increase capacity throughout its operations. The
product

8

---



initiative
involving the production of high-quality, multi-color printing of films and laminates for the baby diaper market in North America and Europe is complete and successful. The
segment's most advanced production line went on-stream in 2005. In 2006, the segment completed the installation of a key production line in Brazil and also installed additional North
American capacity for the production of the latest technology in elastomeric materials for its key customers.

Plastic
resins, such as polyethylene and polypropylene, and non-woven fabrics are the basic raw materials used in the manufacture of substantially all of Specialty Plastic
Films' products, the recent price of which has fluctuated dramatically over the past five years. Clopay Plastic currently purchases its plastic resins in pellet form from several suppliers. The
purchases are made under supply agreements that do not specify fixed pricing terms. Clopay Plastic's sources for raw materials are believed to be adequate for its current and anticipated needs.

Competition

The market for Clopay Plastic's specialty plastic film and laminate products is highly competitive. Clopay Plastic has a number of
competitors in the specialty plastic films and laminates market, some of which are larger and have greater resources than the Company. Clopay Plastic believes that its technical expertise, product
development capabilities and broad international footprint enhance its market position and customer relationships. Clopay Plastic competes primarily on the basis of technical expertise, quality,
service and price.

Clopay
Plastic has developed strong, long-term relationships with leading consumer and health care products companies. Clopay Plastic believes that these relationships,
combined with its technological expertise, product development and production capabilities, including global operations, have positioned it to meet changing customer needs, which is expected to drive
growth. In addition, Clopay Plastic believes its strong, long-term relationships provide it with increasing opportunities to expand and enter new international markets.

Employees

On a consolidated basis, the Company has approximately 4,100 employees located throughout the United States, in Europe and Brazil.
Approximately 140 of its employees are covered by a collective bargaining agreement, primarily with an affiliate of the AFL-CIO. The Company believes its relationships with its employees
are satisfactory.

Regulation

The Company's operations are subject to various environmental, health and employee safety laws. The Company has spent money and
management has spent time complying with environmental, health and worker safety laws which apply to its operations and facilities and the Company expects to continue to do so. Compliance with
environmental laws has not historically materially affected the Company's capital expenditures, earnings or competitive position. The Company does not expect compliance with environmental laws to have
a material effect on the Company in the future. The Company believes that it generally complies with applicable environmental, health and worker safety laws and governmental regulations. Nevertheless,
the Company cannot guarantee that in the future it will not incur additional costs for compliance or that those costs will not be material.

Seasonality

Historically, the Company's revenues and earnings are lowest in its second fiscal quarter and highest in its fourth fiscal quarter.

9

---



Financial Information About Geographic Areas

Revenues, based on the customers' locations, and property, plant and equipment attributed to operations in the United States and all
other countries are as follows:

(in thousands)

2008

2007

2006Revenues by geographic areaUnited States

$
853,692

$
978,220

$
977,625Germany


110,900


83,446


74,886United Kingdom


23,276


33,893


21,392Canada


64,378


57,759


59,797Brazil


44,019


34,526


26,621All other countries


173,040


177,885


167,414$
1,269,305

$
1,365,729

$
1,327,735Property, plant and equipment by geographic areaUnited States

$
151,733

$
128,595

$
129,610Germany


67,800


79,132


79,493All other countries


19,470


22,505


19,477$
239,003

$
230,232

$
228,580


Also
see Note 8 to Notes to Consolidated Financial Statements for additional segment information.

Research and Development

Research and development costs not recoverable under contractual arrangements are charged to expense as incurred. Research and
development costs for all business segments were approximately $17,500,000 in 2008, $16,400,000 in 2007 and $15,300,000 in 2006.

Item 1A.    Risk Factors

You should carefully consider the risks described below, as well as the other information appearing in this document. If any of the
following risks actually occur, they could materially adversely affect our business, financial condition, operating results or prospects. The risks and uncertainties described below are not the only
ones facing us. Additional risks and uncertainties not presently known or that are currently deemed immaterial may also impair our business, financial condition, operating results and prospects.

Periods of adverse market volatility could adversely affect our business.

During periods of economic decline in the markets in which we operate, which include the residential and commercial real estate
markets, as well as the credit markets, we are exposed to basic economic risks including a decrease in the demand for the products and services that we offer and a higher risk of default on our
receivables, which may, in turn, have a material adverse effect on our business and results of operations.

Adverse trends in the housing sector and in general economic conditions will directly impact our business.

The garage door business is influenced by market conditions for new home construction and renovation of existing homes. For the year
ended September 30, 2008, approximately 34% of our total net sales from continuing operations were related to new home construction and renovation of existing homes in our Garage Doors segment.
Trends in the housing sector directly affect financial performance. Accordingly, the strength of the U.S. economy, the age of existing home stock, job growth, interest

10

---



rates,
consumer confidence and the availability of consumer credit, as well as demographic factors such as the migration into the United States and migration of the population within the United States
have an effect on our business. In that respect, the significant downturn in the housing market has had an adverse effect on the operating results of our Garage Doors segment. We continue to be
concerned about trends in market conditions and the outlook for 2009.

We operate in highly competitive industries and may be unable to compete effectively.

We face intensive competition in each of our markets. We have a number of competitors, some of which are larger and have greater
resources. We compete primarily on the basis of competitive prices, technical expertise, product differentiation, and quality of products and services. In addition, there can be no assurance that we
will not encounter increased competition in the future, which could have a material adverse effect on our business.

If we were to lose any of our largest customers, our results of operations could be significantly harmed.

A small number of customers has accounted for a substantial portion of historical net sales, and we expect that a limited number of
customers will continue to represent a substantial portion of sales for the foreseeable future. Approximately 21% of our total net sales from continuing operations and 56% of our Specialty Plastic
Films sales for the fiscal year ended September 30, 2008 were made to Procter & Gamble, which is the largest customer in the Specialty Plastic Films segment. The Home Depot, Inc.
and Menards, Inc. are significant customers of the Garage Doors segment and Lockheed Martin Corporation and the Boeing Company are significant customers of the Electronic Information and
Communication Systems segment. Future operating results will
continue to substantially depend on the success of the largest customers and our relationships with them. Orders from these customers are subject to fluctuation and may be reduced materially. Any
reduction or delay in sales of products to one or more of these customers could significantly harm our business. Our operating results will also depend onour ability to successfully develop
relationships with additional key customers. We cannot assure you that we will retain our largest customers or that we will be able to recruit additional key customers.

Increases in raw material costs could adversely impact our financial condition and operating results.

We purchase raw materials from various suppliers. While all raw materials are available from numerous sources, commodity raw materials
are subject to fluctuations in price. Because raw materials in the aggregate constitute significant components of the cost of goods sold, such fluctuations could have a material adverse effect on our
results of operations. In recent years, there have been price increases in plastic resins and steel, which are the basic raw materials used in the manufacture of specialty plastic films and garage
door products, respectively. Our ability to pass on to customers increases in raw material prices is limited due to customer supply arrangements and competitive pricing pressure, and there is
generally a time lag between increased costs and implementation of related price increases. We have not always been able to increase our prices to fully recoup our increased costs. In addition, sharp
increases in raw material prices are more difficult to pass through to our customers in a short period of time and may negatively affect our short-term financial performance.

Trends in the baby diaper market will directly impact our business.

Recent trends have been for baby diaper manufacturers to specify thinner plastic films for use in their products. This trend has
generally resulted in Specialty Plastic Films incurring costs to redesign and reengineer its own products to accommodate the specification change. This has had the effect of reducing our revenue due
to lower plastic film content in products sold. Such decreases, or our failure to meet changing customer specifications, could result in a decline in our revenues and profits that may have a material
adverse effect on our business, operating results, financial condition and prospects.

11

---



The Electronic Information and Communication Systems business depends heavily upon government contracts.

The Electronic Information and Communication Systems business sells products to the U.S. government primarily as a subcontractor. We
are generally a first-tier supplier to prime contractors in the defense industry, such as Boeing, Lockheed Martin and Northrop Grumman. In the fiscal year ended September 30, 2008,
U.S. government contracts and subcontracts accounted for approximately 20% of our total net sales from continuing operations. Contracts involving the U.S. government may include various risks,
including:



The
programs in which we participate may extend for several years, but are normally funded on an annual basis. The U.S. government may not continue to fund programs to which development
projects apply. Even if funding is continued, we may fail to compete successfully to obtain funding pursuant to such programs.

We must continually improve existing products, design and sell new products and manage the costs of research and development in order to compete effectively.

The markets for Specialty Plastic Films and Electronic Information and Communication Systems businesses are characterized by rapid
technological change, evolving industry standards and continuous improvements in products. Due to constant changes in these markets, future success depends on our ability to develop new technologies,
products, processes and product applications.

We
develop technologies and products through internally-funded research and development and strategic partnerships with our customers. Because it is generally not possible to predict the
amount of time required and the costs involved in achieving certain research and development objectives, actual development costs may exceed budgeted amounts and estimated product development
schedules may be extended. Our business, financial condition and results of operations may be materially and adversely affected if:



12

---





We may be unable to implement our acquisition growth strategy, and failure to manage our acquisition strategy properly may result in added expenses to our company without a
commensurate increase in revenues and divert our management's attention.

As part of our plan to grow our business, we anticipate making strategic acquisitions of other companies. Our growth may depend on our
ability to identify and acquire, on acceptable terms, companies that complement or enhance our business. After our acquisition of any such companies, we will need to properly integrate them into our
company. The competition for acquisition candidates is intense and we expect this competition to increase. We cannot give you any assurance that we will identify and successfully compete for
appropriate acquisition candidates or complete acquisitions at reasonable purchase prices, in a timely manner or at all. Further, we may not be able to properly integrate such companies into our
company. In implementing our acquisition growth strategy, we may encounter:



If
we are not successful in implementing our acquisition growth strategy, it could have an adverse impact on our results of operations.

There may be unforeseen expenses in connection with our exit from substantially all operating activities of our Installation Services segment.

As a result of the downturn in the residential housing market and the impact on the Installation Services segment, in May 2008, our
Board of Directors approved a plan to exit substantially all operating activities of the Installation Services segment in 2008. We are winding down remaining disposal activities in the first half of
fiscal 2009 and do not expect to incur significant expenses in the future. Future net cash outflows to satisfy restructuring liabilities that were accrued as of September 30, 2008 are estimated
to range between $7 million and $8 million. Substantially all of such liabilities are expected to be paid within the next twelve months. Such estimates may be exceeded by unforeseen
events.

The loss of certain key officers or employees could adversely affect our business.

The success of our business is materially dependent upon the continued services of certain of key officers and employees. The loss of
such key personnel could have a material adverse effect on our business, operating results or financial condition.

Our businesses are subject to seasonal variations.

Historically, our revenues and income are lowest in the second fiscal quarter ending on March 31 and highest in the fourth
fiscal quarter ending September 30. The quarterly operating results fluctuation is mainly due to the seasonality in our Garage Doors business. The primary revenues of our Garage Doors business
are driven by residential renovation and construction. Cold weather in the winter months usually reduces the level of building and remodeling activity in both the home improvement and new construction
markets and, accordingly, has an adverse effect on the demand for Garage Doors products. Seasonal fluctuation in the demand for Garage Doors products could have a material adverse effect on results of
our operations. Because a high percentage of manufacturing overhead and operating expenses are relatively fixed throughout the year, our operating margins have historically been lower in quarters with
lower sales. As a result, our operating results and our stock price could be volatile, particularly on a quarterly basis.

13

---



We are exposed to a variety of risks relating to international sales and operations, including foreign economic and political conditions and fluctuations in exchange rates.

We own properties and conducts operations in Europe and South America through our foreign subsidiaries. Sales of our products through
foreign subsidiaries accounted for approximately 24% of total net sales from continuing operations for the fiscal year ended September 30, 2008. These foreign sales could be adversely affected
by changes in various foreign countries' political and economic conditions, trade protection measures, differing intellectual property rights and changes in regulatory requirements that restrict the
sales of our products or increase our costs. Currency fluctuations between the U.S. dollar and the currencies in the foreign countries or regions in which we do business may also have an impact on our
future operating results.

We may not be able to protect our proprietary rights.

We rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality and non-disclosure
agreements and other contractual provisions to protect our proprietary rights. Such measures provide only limited protection. We cannot assure that our means of protecting these proprietary rights
will be adequate or that competitors will not independently develop similar technologies.

We are exposed to product liability claims.

We may be the subject of product liability claims in the future relating to the performance of our products or the performance of a
product in which any of our products was a component part. There can be no assurance that product liability claims will not be brought against us in the future, either by an injured customer of an end
product manufacturer who used one of the products as a component or by a direct purchaser from us. In addition, no assurance can be given that indemnification from customers or coverage under
insurance policies will be adequate to cover future product liability claims against us. Moreover, liability insurance is expensive, difficult to maintain and may be unobtainable in the future on
acceptable terms. The amount and scope of any insurance coverage may be inadequate if a product liability claim is successfully asserted against us. Furthermore, if any significant claims are made,
our business may be adversely affected by any resulting negative publicity.

We have been, and may in the future be, subject to claims and liabilities under environmental laws and regulations.

Our operations and assets are subject to federal, state, local and foreign environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposal of wastes, including solid and hazardous wastes, or otherwise relating to health, safety and protection of the environment. We do
not expect to make any expenditures with respect to ongoing compliance with or remediation under these environmental laws and regulations that would have a material adverse effect on our business,
operating results or financial condition. However, the applicable requirements under the law may change at any time.

We
can also incur environmental liabilities in respect of sites that we no longer own or operate, as well as third-party sites to which we send hazardous materials. We cannot assure you
that material costs or liabilities will not be incurred in connection with such claims. A site in Peekskill in the town of Cortlandt, New York was previously owned and used by two of our subsidiaries.
The Peekskill site was sold in December 1982. In 1984, we were advised by the New York State Department of Environmental Conservation ("DEC") that random sampling of the Peekskill site indicated
concentrations of solvents and other chemicals common to the operations of our subsidiary that used the site. In May 1996, our subsidiary that formerly owned the site entered into a consent order with
the DEC to investigate and remediate environmental conditions at this site, including the performance of a remedial investigation and feasibility study. After completing the initial remedial
investigation, the subsidiary has now performed a supplemental remedial investigation under the consent order. Subsequently, an addendum

14

---



to
the supplemental remediation investigation was negotiated and conducted and a further report submitted to the DEC. We believe, based on facts presently known, that the outcome of this matter will
not have a material adverse effect on our results of operations and financial condition. We cannot assure you, however, that the discovery of presently unknown environmental conditions, changes in
environmental laws and regulations or other unanticipated events will not give rise to claims that may involve material expenditures or liabilities.

Changes in income tax laws and regulations or exposure to additional income tax liabilities could adversely affect profitability.

We are subject to income taxes in the United States and in various foreign jurisdictions. Domestic and international tax liabilities
are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax
rates, changes in any valuation allowance for deferred tax assets or the amendment or enactment of tax laws. The amount of income taxes paid is subject to ongoing audits by U.S. Federal, state and
local tax authorities and also by foreign authorities. If these audits result in assessments different from recorded income tax liabilities, our future financial results may include unfavorable
adjustments to income tax expense.

Our compliance with restrictions and covenants in our debt agreements may limit our ability to take corporate actions and harm our business.

The debt agreements entered into by certain of our subsidiaries contain a number of covenants that restrict their ability to incur
additional debt and to pay dividends to us. Under the respective revolving credit agreements, these subsidiaries are also required to comply with specific financial ratios and tests. These
subsidiaries may not be able to comply in the future with these covenants or restrictions as a result of events beyond their control, such as prevailing economic,
financial and industry conditions or a change in control of our company. If our subsidiary defaults in maintaining compliance with the covenants and restrictions in its debt agreement, its lenders
could declare all of the principal and interest amounts outstanding due and payable and terminate their commitments to extend credit to the subsidiary in the future. If the subsidiairy or we are
unable to secure credit in the future, our business could be harmed.

Our inability to repurchase outstanding convertible notes as required under the indenture may cause an event of default under other agreements.

On July 18, 2010, 2013, 2018, as well as upon a change in control, as defined in the indenture, noteholders will have the right
to require repurchase of their notes. If our common stock price is below the conversion price of the debenture on the earliest of these dates, we anticipate that noteholders will require us to
repurchase their outstanding notes. If we do not have sufficient funds to pay the repurchase price for all of the notes tendered, an event of default under the indenture governing the notes would
occur as a result of such failure, which could have a material adverse effect on our company. At September 30, 2008, we had $130 million outstanding of convertible notes. In October
2008, we purchased $35.5 million face value of the notes from certain note holders for $28.4 million.

Our reported earnings per share may be more volatile because of the conversion contingency provision of the notes.

The outstanding convertible notes are convertible when a "market price" condition is satisfied and also upon the occurrence of other
circumstances as more fully described in Note 3 to the Notes to Consolidated Financial Statements. Upon conversion, noteholders will receive at least $1,000 in cash for each $1,000 principal
amount of notes presented for conversion. The excess of the value of our common stock that would have been issuable upon conversion over the cash delivered will be paid to noteholders in shares of our
common stock. These shares are considered in the calculation of diluted

15

---



earnings
per share and volatility in our stock price could cause these notes to be dilutive in one quarter and not in a subsequent quarter, increasing the volatility of fully diluted earnings per
share.

We may be unable to raise additional financing if needed.

We may need to raise additional funds in the future in order to implement our business plan, to refinance our debt or to acquire
businesses or products. Any required additional financing may be unavailable on terms favorable to us, or at all, due to the uncertainties in the current credit market. If we raise additional funds by
issuing equity securities, holders of our common stock may experience significant dilution of their ownership interest and these securities may have rights senior to those of the holders of our common
stock.

Our indebtedness and interest expense could limit our cash flow and adversely affect our operations and our ability to make full payment on our outstanding notes.

Our indebtedness poses risks to our business, including the risks that:



We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock.

The issuance of additional equity securities or securities convertible into equity securities would result in dilution of our existing
stockholders' equity interests. We are authorized to issue, without stockholder approval, 3,000,000 shares of preferred stock in one or more
series, which may give other stockholders dividend, conversion, voting, and liquidation rights, among other rights, which may be superior to the rights of holders of our common stock. Our Board of
Directors has the authority to issue, without vote or action of stockholders, shares of preferred stock in one or more series, and has the ability to fix the rights, preferences, privileges and
restrictions of any such series. Any such series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or
other rights superior to the rights of holders of our common stock. Our Board of Directors has no present intention of issuing any such preferred stock, but reserves the right to do so in the future.
In addition, we are authorized to issue, without stockholder approval, up to 85,000,000 shares of common stock, of which approximately 58,655,000 shares were outstanding as of September 30,
2008. We are also authorized to issue, without stockholder approval, securities convertible into either shares of common stock or preferred stock.

Item 1B.    Unresolved Staff Comments

None.

16

---



Item 2.    Properties

The Company occupies approximately 4,800,000 square feet of general office, factory and warehouse space throughout the United States,
Germany and Brazil. For a description of the encumbrances on certain of these properties, see Note 3 to the Company's Notes to Consolidated Financial Statements. The following table sets forth
certain information related to the Company's major facilities:

Location

Business Segment

Primary Use

Approximate
Square
Footage

Owned or
LeasedJericho, NY

Corporate Headquarters

Office


10,000

LeasedFarmingdale, NY

Electronic Information and Communication Systems

Manufacturing and research and development


193,000

OwnedHuntington, NY

Electronic Information and Communication Systems

Manufacturing


94,000
55,000

Owned
LeasedMelville, NY

Electronic Information and Communication Systems

Manufacturing


25,000

LeasedColumbia, MD

Electronic Information and Communication Systems

Engineering


25,000

LeasedGardena, CA

Electronic Information and Communication Systems

Repairs


10,000

LeasedStockholm, Sweden

Electronic Information and Communication Systems

Manufacturing/ Engineering


22,000

LeasedMason, OH

Garage Doors
Specialty Plastic Films

Office and research and development


131,000

OwnedAschersleben, Germany

Specialty Plastic Films

Manufacturing


289,000

OwnedDombühl, Germany

Specialty Plastic Films

Manufacturing


124,000

OwnedAugusta, KY

Specialty Plastic Films

Manufacturing


275,000

OwnedNashville, TN

Specialty Plastic Films

Manufacturing


210,000
150,000

Owned LeasedJundiai, Brazil

Specialty Plastic Films

Manufacturing


88,000

OwnedTroy, OH

Garage Doors

Manufacturing


867,000

LeasedRussia, OH

Garage Doors

Manufacturing


339,000

OwnedBaldwin, WI

Garage Doors

Manufacturing


155,000

LeasedAuburn, WA

Garage Doors

Manufacturing


123,000

Leased


The Company also leases approximately 1,900,000 square feet of space for the Garage Doors distribution centers in numerous facilities throughout
the United States.

The
Company has minimum annual rental commitments under real estate leases of approximately $12 million. The majority of the leases have escalation clauses related to increases in
real property taxes on the leased property and some for cost of living adjustments. Certain of the leases have renewal and purchase options.

In
fiscal 2006, the Company acquired a manufacturing facility for the Garage Doors segment in Troy, Ohio. In fiscal 2007, the Company entered into a capital lease for this facility. The
plants and equipment of the Company are believed to contain sufficient space for current and presently foreseeable needs.

17

---



Item 3.    Legal Proceedings

Department of Environmental Conservation of New York State ("DEC"), with ISC
Properties, Inc.Lightron Corporation ("Lightron"), a wholly-owned subsidiary of the Company, once conducted operations at a location in Peekskill in the Town of
Cortlandt, New York owned by ISC Properties, Inc., a wholly-owned subsidiary of the Company (the "Peekskill Site"). ISC Properties, Inc. sold the Peekskill Site in November 1982.

Subsequently,
the Company was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other
chemicals common to Lightron's prior plating operations. ISC Properties, Inc. then entered into a consent order with the DEC in 1996 (the "Consent Order") to perform a remedial investigation
and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC Properties, Inc. was required by the DEC to conduct a supplemental
remedial investigation under the Consent Order. In or about August 2004, a report was submitted to the DEC of the findings under the supplemental remedial investigation. Subsequently, an addendum to
the supplemental remediation investigation was negotiated and conducted and a further report submitted to the DEC. A soil vapor investigation report that contained the findings of a soil vapor
investigation conducted at the Site under the Consent Order was submitted in July 2007 to, and accepted in September 2007 by, the DEC. Thereafter, ISC Properties, Inc. submitted to the DEC for
its approval, a final draft of all of the Remedial Investigation work performed in connection with, and as required by, the Consent Order. In accordance with the soil vapor investigation work that ISC
Properties, Inc. had performed at the Peekskill Site under the Consent Order, ISC Properties, Inc., per the request of the DEC, proposed to, and did undertake to perform one additional
one day sampling event in March 2008 in accordance with an approved soil vapor work plan, and a soil vapor investigation report was submitted to DEC in May 2008.

In
March 2008, DEC requested additional, supplemental sampling at the Site, and a Supplemental Investigation Work Plan was submitted to the DEC in April 2008. Based on comments received
from the DEC in July 2008, a revised Supplemental Investigation Work Plan was submitted on July 30, 2008 to, was approved subsequently by, the DEC. The work that was required to be performed in
accordance with the Supplemental Investigation Work Plan was performed in October 2008 and a report was prepared for submission to the DEC. No feasibility study has yet been performed pursuant to the
Consent Order.

In
addition, the Company is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of
business. Management believes, based on facts presently known to it, that the resolution of the matter above and such other
matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

Item 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year.

18

---





PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's Common Stock is listed for trading on the New York Stock Exchange under the symbol "GFF". The following table shows for
the periods indicated the quarterly range in the high and low sales prices for the Company's Common Stock:

Fiscal Quarter Ended

High

LowDecember 31, 2006


26.25


21.46March 31, 2007


26.10


22.66June 30, 2007


24.90


21.27September 30, 2007


22.32


11.97December 31, 2007


15.82


11.97March 31, 2008


12.70


7.39June 30, 2008


11.40


8.38September 30, 2008


12.70


8.36


As
of December 1, 2008, there were approximately 14,000 recordholders of the Company's Common Stock.

No
cash dividends on Common Stock were declared or paid during the five fiscal years ended September 30, 2008.



The following sets forth information relating to the Company's equity compensation plans as of September 30, 2008:

Plan Category

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(Column a)

Weighted average
exercise price
of outstanding
options,
warrants
and rights
(Column b)

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
Column (a))
(Column c)Equity compensation plans approved by security holders(1)


1,006,240

$
13.32


974,336Equity compensation plans not approved by security holders(2)


394,651

$
15.27


Total


1,400,891

$
13.87
(3)

974,336


---

19

---



PERFORMANCE GRAPH

The following graph sets forth the cumulative total return to our stockholders during the five years ended September 30, 2008,
as well as an overall stock market (S&P SmallCap 600 Index) and our peer group index (Dow Jones U.S. Diversified Industrials Index).

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Griffon Corporation, The S&P Smallcap 600 Index  And The Dow Jones US Diversified Industrials Index

GRAPHIC

*
$100 invested on 9/30/03 in stock & indexincluding reinvestment of dividends. Fiscal year ending September 30.

Issuer Purchases of Equity Securities

Period

Total Number of
Shares
Purchased(1)

Average Price
Paid Per Share

Total Number of
Shares Purchased
as part of
Publicly
Announced Plans
or Programs

Maximum Number
of shares that
may yet be
Purchased under
the Plans or
ProgramsJuly 1 - 31, 2008











1,366,295August 1 - 31, 2008











1,366,295September 1 - 30, 2008











1,366,295Total











---

20

---



Item 6.    Selected Financial Data

(in thousands, except per share data)

2008

2007

2006

2005

2004Net sales from continuing operations

$
1,269,305

$
1,365,729

$
1,327,735

$
1,132,382

$
1,114,891Income from continuing operations

$
88

$
28,165

$
45,856

$
42,980

$
46,528Income (loss) from discontinued operations


(40,591
)

(6,086
)

5,930


5,833


7,331Net income (loss)

$
(40,503
)
$
22,079

$
51,786

$
48,813

$
53,859Earnings (loss) per share:Basic:Continuing operations

$
.00

$
.87

$
1.42

$
1.33

$
1.45Discontinued operations


(1.24
)

(.19
)

.18


.18


.22$
(1.24
)
$
.68

$
1.60

$
1.51

$
1.67Diluted:Continuing operations

$
.00

$
.84

$
1.36

$
1.27

$
1.37Discontinued operations


(1.24
)

(.19
)

.17


.17


.21$
(1.24
)
$
.65

$
1.53

$
1.44

$
1.58Total assets

$
1,171,566

$
959,858

$
928,214

$
851,427

$
749,516Long-term obligations

$
230,930

$
229,438

$
209,228

$
196,540

$
154,445


21

---





Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Net sales from continuing operations for the fiscal year ended September 30, 2008 were $1.27 billion, compared to
$1.37 billion in fiscal 2007. Income from continuing operations, which was significantly impacted by a non-cash goodwill write-off taken in the fourth quarter of fiscal
2008 of $12.9 million in the Garage Doors segment, was $.1 million, or nil per diluted share, for the year compared to $28.2 million, or $.84 per diluted share, last year. Loss
from discontinued operations for fiscal 2008 was $40.6 million, or $1.24 per diluted share, compared to $6.1 million, or $.19 per diluted share, last year. Net loss for fiscal 2008 was
$40.5 million, or $1.24 per diluted share, compared to net income of $22.1 million, or $.65 per diluted share, last year.

The
fourth-quarter non-cash goodwill write-off is not tax deductible, resulting in an increase in the Company's effective tax rate from continuing operations for
the fiscal year ended September 30, 2008.

In
September 2008, the Company received $241.3 million of gross proceeds from the first closing of its rights offering and the closing of the related investments by GS Direct and
by the Company's Chief Executive Officer. An additional $5.3 million of rights offering proceeds were received in October 2008 in connection with the second and final closing of the rights
offering, after which the rights offering was terminated. The Company intends to use the proceeds for general corporate purposes and to fund future growth.

The
Electronic Information and Communications Systems segment was impacted in fiscal 2008 by the anticipated wind down of contract work from the Warlock-Duke program with
Syracuse Research Corporation (SRC) in late fiscal 2007. The SRC program contributed revenues of $190.1 million in fiscal 2007, while producing revenues of $18.1 million in fiscal 2008.
However, the segment's other programs continue to expand and funded backlog was approximately $335 million at September 30, 2008. Excluding the impact of the SRC contracts in the
respective fiscal-year periods, core business sales grew by approximately $66.4 million, or 24%. The Electronic Information and Communications Systems segment was awarded contracts
in excess of $400 million for the MH-60 program that are expected to be incrementally funded over the next several years. Based on these contract awards, this program is anticipated
to generate revenues at a run rate of approximately $100 million per year for the next several years.

The
Company's Garage Doors segment results were impacted by the sustained downturn in the residential housing and credit markets, with sales and operating profits decreasing from the
prior-year period. As previously stated, operating results were significantly impacted by the $12.9 million non-cash goodwill write-off. Such goodwill
write-off does not affect the Company's cash position, cash flow from operating activities, credit availability or liquidity and will not have any affect on the Company's future
operations. The segment continues to be challenged by the trends in market conditions and the outlook for 2009. According to the National Association of Home Builders, current data compared to the
prior fiscal year show new home starts down 31%, new home sales down 33% and a 10.4-month supply of new homes. Existing home sales are flat and the inventory of existing homes is is also
flat at a 10-month supply. The segment remains committed to retaining its customer base and, where possible, growing market share to offset the shrinking market. Steel costs, a key
component of garage doors, rose considerably in fiscal 2008 and adversely impacted results. Selling prices were increased during the fiscal year, partially offsetting rising costs. As a result of the
Company's decision to exit the Installation Services business (see below), two Installation Services units were transferred into the Garage Doors segment. All periods presented herein have been
recasted to include the operating results of these two units in the Garage Doors segment.

The
Specialty Plastic Films segment had increases in sales of 15% and increases in operating profit of 19% in fiscal 2008. The segment's operating results were favorably impacted by
growth in its elastics program, resulting in an improved product mix, operational efficiencies in its foreign facilities and favorable foreign currency translation adjustments. These results were
unfavorably affected by

22

---



significant
reductions in pricing to a major customer as a result of continued product alterations and competitive factors, as well as the adverse impact of rising resin costs. Over the past several
years, the segment has been successful in diversifying its customer portfolio. In 2009, the segment is optimistic
that their progress on cost reduction programs and product mix should result in further improved performance, but expects to be challenged with new product roll-outs.

Discontinued OperationsInstallation Services segment

As a result of the downturn in the residential housing market and the impact on the Installation Services segment, in May 2008, the
Company's Board of Directors approved a plan to exit substantially all operating activities of the Installation Services segment in 2008. Certain operating units in the Installation Services segment
were closed during the second and third quarters, two units were transferred into the Garage Doors segment (as noted above), others were sold during the third quarter and the remaining operating units
in Las Vegas and Phoenix were sold in the fourth quarter of fiscal 2008. Net sales of discontinued operations were $109.4 million, $250.9 million and $308.8 million for the years
ended September 30, 2008, 2007 and 2006, respectively. Disposal costs related to the Installation Services segment included in its operating results were $43.1 million for fiscal 2008.
The Company is winding down remaining disposal activities in the first half of fiscal 2009 and does not expect to incur significant expenses in the future. Future net cash outflows to satisfy
liabilities that were accrued as of September 30, 2008 are estimated to range between $7 million and $8 million. Substantially all of such liabilities are expected to be paid
within the next twelve months, and the Installation Services segment is excluded from segment reporting.

RESULTS OF OPERATIONS

Fiscal 2008 Compared to Fiscal 2007

Operating results from continuing operations (in thousands) by business segment were as follows:

Net Sales

Operating Profit2008

2007

2008

2007Electronic Information and Communication Systems

$
366,288

$
472,549

$
32,737

$
45,888Garage Doors(1)


435,321


486,606


(17,444
)

7,117Specialty Plastic Films


467,696


406,574


20,620


17,263$
1,269,305

$
1,365,729

$
35,913

$
70,268


---

Electronic Information and Communication Systems

Net sales of the Electronic Information and Communication Systems segment decreased $106.3 million, or 22.5%, compared to last
year. The sales decrease was attributable to the wind down in late fiscal 2007 of substantial contracts with SRC, as anticipated. Partially offsetting this decrease was revenue growth in the segment's
core business of $66.4 million, or 23.6%, related to new and expanded programs.

Gross
profit of the Electronic Information and Communication Systems segment decreased by $9.3 million compared to last year. However, gross margin percentage increased to 21.5%
from 18.7% last year, principally due to a favorable program mix, as the margin on the SRC contracts was lower than the average margin on other contracts. SG&A expenses increased $3.7 million
compared to last year and increased, as a percentage of sales, to 12.8% compared to 9.1% last year. The increase in SG&A is primarily due to expenditures associated with product engineering and
enhancement, as well as increases in expenses related to certain sales and marketing related efforts. Operating profit of the

23

---



Electronic
Information and Communication Systems segment decreased $13.2 million, or 28.7%, principally due to the substantial revenue decline attributable to the SRC contracts noted above.

Garage Doors

Net sales of the Garage Doors segment decreased by $51.3 million, or 10.5%, compared to last year primarily due to the effects
of the weak residential housing market. The decline in unit sales was partially offset by higher selling prices to pass through rising material and freight costs, a favorable product mix, and a
decrease in customer returns and deductions.

Gross
profit of the Garage Doors segment decreased by $16.5 million compared to last year. Gross margin percentage, increased to 28.3% from 28.2% last year, primarily due to the
operating efficiencies derived from the closure of the Tempe, AZ facility and other headcount and cost reductions, lower customer returns and deductions, partially offset by reduced sales volume and
associated plant efficiency loss and lower margins from the businesses transferred from the Installation Services segment. SG&A expenses were approximately $5.0 million lower than last year
but, as a percentage of sales, increased to 28.8% from 26.3% last year due to the sales decrease. The operating loss of Garage Doors was further impacted by the write-off of its goodwill
of $12.9 million. Operating profit of the Garage Doors segment decreased by $24.6 million compared to last year, resulting in an operating loss.

Specialty Plastic Films

Net sales of the Specialty Plastic Films segment increased $61.1 million, or 15.0%, compared to last year. The increase was
principally due to a favorable product mix in North America, the impact of increased selling prices due to the rising cost of resin and the favorable impact of exchange rates on translated foreign
sales, partially offset by lower selling prices to a major customer associated with a multi-year contract and lower volumes in Europe.

Gross
profit of the Specialty Plastic Films segment increased by $3.8 million, or 6.0%, compared to last year. Gross margin percentage decreased to 14.3% from 15.5% last year. The
effect of higher resin costs not fully recovered in increased selling prices and lower unit volumes negatively affected margins, which were partially offset by a favorable product mix in North America
and Brazil and manufacturing efficiencies in Europe and Brazil. SG&A expenses were flat from last year and, as a percentage of sales, decreased to 10.3% from 11.9% last year due to the sales increase.
Operating profit of the Specialty Plastic Films segment increased $3.4 million, or 19.4%, compared to last year.

Interest Expense

Interest expense decreased by $1 million compared to 2007 principally due to lower levels of outstanding borrowings and lower
average borrowing rates during the year.

Provision (benefit) for income taxes

The Company's overall effective tax rate when combining results from continuing and discontinued operations was approximately 30.2%,
reported as a net benefit, compared to 30.2%, reported as a net provision, last year. The rate change was principally due to the Company's current-year loss position and the ability to
derive benefit from this loss, as well as additional benefit derived from the reversal of certain reserves of approximately $11.4 million in connection with closed tax years and the settlement
of certain tax examinations included in the calculation of the tax rate for fiscal 2008. The benefit rate was partially offset by the non-deductability of the goodwill
write-off and the inability to utilize certain foreign tax credits related to certain dividends paid by foreign subsidiairies. The prior-year tax provision rate was principally
related to differences in the mix of income in lower, foreign tax jurisdictions, partially offset by a benefit derived from closed tax years.

24

---



Discontinued operationsInstallation Services

Net sales of the Installation Services' operating units were $109.4 million and $250.9 million for fiscal 2008 and 2007,
respectively. Net sales of the Installation Services segment decreased $141.5 attributed to overall weakness in the residential construction market and closure or sale of operating units that resulted
from the Company's decision to exit the segment in fiscal 2008. Operating loss of the Installation Services' operating units was $62.4 million and $9.8 million for fiscal 2008 and 2007,
respectively.

Fiscal 2007 Compared to Fiscal 2006

Operating results from continuing operations (in thousands) by business segment were as follows:

Net Sales

Operating Profit2007

2006

2007

2006Electronic Information and Communication Systems

$
472,549

$
387,437

$
45,888

$
39,609Garage Doors


486,606


558,925


7,117


42,493Specialty Plastic Films


406,574


381,373


17,263


15,450$
1,365,729

$
1,327,735

$
70,268

$
97,552


Electronic Information and Communication Systems

Net sales of the Electronic Information and Communication Systems segment increased $85.1 million compared to last year
primarily from an SRC contract revenue increase of $47 million and MH-60 program revenue of $31 million.

Gross
profit of the Electronic Information and Communication Systems segment increased $13.1 million compared to last year. Gross margin percentage decreased to 18.7% from 19.4%
last year, principally due to lower margins on the SRC contract. Selling, general and administrative expenses increased approximately $7 million over last year but, as a percentage of sales,
was 9.1% compared to 9.4% last year due to the sales growth. Operating profit of the Electronic Information and Communication Systems segment increased $6.3 million compared to last year.

Garage Doors

Net sales of the Garage Doors segment decreased by $72.3 million compared to 2006. The sales decrease was principally due to
lower sales volumes to dealers and retailers, partially offset by higher selling prices that passed on the effect of higher raw material costs to customers, favorable product mix and improved product
quality that resulted in decreased customer deductions.

Gross
profit of the Garage Doors segment decreased $36.5 million compared to last year. Gross margin percentage was 28.2% in 2007 compared to 30.8% in 2006, reflecting lower sales
volume which resulted in less overhead absorption and increased material costs. Selling, general and administrative expenses decreased approximately $1.2 million from 2006, as lower freight and
distribution costs were partially offset by costs associated with the closure of a manufacturing facility in Tempe, Arizona and the movement of a production line from Tempe to Troy, Ohio. As a
percentage of sales, selling, general and administrative expenses were 26.3% in 2007 compared to 23.5% in 2006. Operating profit of the Garage Doors segment decreased $35.4 million compared to
last year.

Specialty Plastic Films

Net sales of the Specialty Plastic Films segment increased $25.2 million compared to last year. The increase reflects higher
unit volumes principally related to strong European volume and sales of the new, elastic laminates product in North America, the effect of selling price adjustments to partially pass increased raw
material costs to customers, and the impact of a weaker U.S. dollar on translated sales,

25

---



offset
in part by lower selling prices to the segment's major customer, unfavorable product mix and the timing of development cost reimbursements.

Gross
profit of the Specialty Plastic Films segment decreased $2.8 million compared to last year. Gross margin percentage decreased to 15.5% from 17.2% last year primarily due to
the lower selling prices to the segments major customer. The decrease in gross profit was primarily attributable to lower selling prices to the segment's major customer, partially offset by higher
unit sales volume, the impact of resin price and cost fluctuations, the weaker U.S. dollar and its impact on foreign sales, profit contribution of new products and lower operational expenses. Selling,
general and administrative expenses decreased $4 million compared to last year principally due to the elimination of start-up costs related to the Brazilian facility and lower costs
due to a reduction in force at the end of 2006. As a percentage of sales, selling, general and administrative expenses were 11.9% in 2007 compared to 13.7% last year. Operating profit of the Specialty
Plastic Films segment increased $1.8 million compared to last year.

Interest Expense

Interest expense increased by $2 million compared to 2006 principally due to higher levels of outstanding borrowings throughout
the year.

Provision for income taxes

The provision for income taxes from continuing operations for the fiscal year ended September 30, 2007 reflects a rate that is
lower than the statutory United States and applicable foreign tax rates primarily due to a reversal of approximately $1.4 million of estimated income tax liabilities in connection with closed
tax years and a statutory tax rate change in Germany that caused an adjustment in the valuation of net deferred tax liabilities of approximately $1 million.

Discontinued operationsInstallation Services

Net sales of the Installation Services operating units were $250.9 million and $308.8 million for fiscal 2007 and 2006,
respectively. Net sales of the Installation Services segment decreased $57.9 million compared to last year. The lower sales was primarily attributed to decreased revenue in the Las Vegas and
Atlanta markets resulting from a decline in flooring, fireplace, garage door and appliance installations sales offset by cabinet sale gains attributable to the cabinet installation Company
acquisition.

Gross
profit of the Installation Services segment decreased $14.2 million compared to last year, reflecting lower unit volumes. Gross margin percentage increased to 29.7% from
29.2% last year due to improved sales mix and higher margins from the cabinet installation company acquisition. Selling, general and administrative expenses increased approximately $3.6 million
due primarily to expenses from the cabinet installation company acquisition and additional bad debt expense due to increased risk in accounts receivable related to the impact of the general market
decline. As a percentage of sales, selling, general and administrative expenses were 33.6% in 2007 compared to 26.1% in 2006. Operating profit (loss) of the Installation Services segment was $(9.8)
million and $9.6 million for fiscal 2007 and 2006, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated by continuing operations for fiscal 2008 were $86.0 million compared to $59.7 million last year.
Working capital increased to $562.1 million at September 30, 2008 compared to $354.2 million last year, primarily as a result of proceeds from the rights offering concluded in
September 2008. Operating cash flows from continuing operations were principally the result of decreased accounts receivable and increased accounts payable, partially offset by increased inventories
and increased prepaid expenses and other current assets.

26

---



During
fiscal 2008, the Company used cash from investing activities of continuing operations of $49.4 million compared to $41.2 million last year. The Company had capital
expenditures of approximately $53.1 million, primarily related to the financing of existing maturing lease obligations for certain property, plant and equipment (see below).

During
fiscal 2008, the Company provided cash from financing activities of continuing operations of $231.4 million. Financing cash flows primarily relate to net cash proceeds
received of $234.2 million provided from the issuance of shares of common stock pursuant to a rights offering (see below). Uses of cash included treasury stock purchases of $579,000 to acquire
40,900 shares of the Company's common stock. Approximately 1.4 million shares of common stock are available for purchase pursuant to the Company's stock buyback program and additional
purchases, including pursuant to a 10b5-1 plan, may be made, depending upon market conditions and other factors, at prices deemed appropriate by management.

In
August 2008, the Company's Board of Directors authorized a 20 million share common stock rights offering to its shareholders in order to raise equity capital for general
corporate purposes and to fund future growth. The rights had an exercise price of $8.50 per share. In conjunction with the rights offering, GS Direct agreed to back stop the rights offering by
purchasing, on the same terms, any and all shares not subscribed through the exercise of rights. GS Direct also agreed to purchase additional shares of common stock at the rights offering price if it
did not acquire a minimum of 10 million shares of common stock as a result of its back stop commitment. In September 2008, the Company received $241.3 million of gross proceeds from the
first closing of its rights offering and the closing of the related investments by GS Direct and by Ronald Kramer, the Company's Chief Executive Officer. An additional $5.3 million of rights
offering proceeds were received in October 2008 in connection with the second and final closing of the rights offering, after which the rights offering was terminated.

In
June 2008, Clopay Building Products Company, Inc. ("BPC") and Clopay Plastic Products Company, Inc. ("PPC"), each a wholly-owned subsidiary of the Company, entered into
a credit agreement for their domestic operations with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide a
five-year, senior secured revolving credit facility of $100 million (the "Clopay Credit Agreement"). Availability under the credit facility is based upon certain eligible accounts
receivable, inventory, cash and cash equivalents and property, plant and equipment. Commitments under the Clopay Credit Agreement may be increased by up to an additional $50 million under
certain circumstances. Borrowings under the Clopay Credit Agreement bear interest at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of BPC and PPC and the
stock of their subsidiaries. The Clopay Credit Agreement contains certain restrictive and financial covenants, certain of which are only subject to compliance if borrowing availability falls below a
certain level. Upon the occurrence of certain events of default specified in the Clopay Credit Agreement, amounts due under the agreement may be declared immediately due and payable. Proceeds of a
$33 million initial draw under this facility were primarily used to finance existing maturing lease obligations. At September 30, 2008, $33.9 million was outstanding under the
Clopay Credit Agreement and approximately $42.9 million was available for
borrowing. BPC and PPC were in compliance with all of their financial covenants under the Clopay Credit Agreement at September 30, 2008.

In
March 2008, Telephonics Corporation ("Telephonics"), a wholly-owned subsidiary of the Company, entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent,
and the lenders party thereto, pursuant to which the lenders agreed to provide a five-year, revolving credit facility of $100 million (the "Telephonics Credit Agreement").
Commitments under the Telephonics Credit Agreement may be increased by up to an additional $50 million under certain circumstances. Borrowings under the Telephonics Credit Agreement bear
interest at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of Telephonics and the stock of Telephonics' subsidiaries pursuant to a Guarantee and Collateral
Agreement made by Gritel Holding Co., Inc., a subsidiary of the Company newly-formed at the time and the parent of Telephonics, and Telephonics in favor of the lenders. The Telephonics
Credit Agreement contains

27

---



certain
restrictive and financial covenants. Upon the occurrence of certain events of default specified in the Telephonics Credit Agreement, amounts due under the Telephonics Credit Agreement may be
declared immediately due and payable. Proceeds of a $50 million initial draw under this facility, together with internal cash of the Company, were used to repay $62.5 million of
outstanding debt under the Company's Amended and Restated Credit Agreement, dated as of December 20, 2006, as amended, among the Company, Telephonics, JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party thereto, at which time such Amended and Restated Credit Agreement was terminated. At September 30, 2008, $44.5 million was outstanding under
the Telephonics Credit Agreement and approximately $51.5 million was available for borrowing. Telephonics was in compliance with all of its financial covenants under the Telephonics Credit
Agreement at September 30, 2008.

The
Telephonics Credit Agreement and the Clopay Credit Agreement include various sublimits for standby letters of credit. At September 30, 2008, there were approximately
$17 million of aggregate standby letters of credit outstanding under these credit facilities. These credit agreements limit dividends and advances that these subsidiaries may pay to the parent
Company. The agreements permit the payment of income taxes, overhead and expenses, with dividends or advances in excess of these amounts being limited based on (a) with respect to the Clopay
Credit Agreement, maintaining certain minimum availability under the loan agreement or (b) with respect to the Telephonics Credit Agreement, compliance with certain conditions and limited to an
annual maximum.

At
September 30, 2008, the Company had $130 million outstanding of 4% convertible subordinated notes due 2023 (the "Notes"). Holders of the Notes may require the Company to
repurchase all or a portion of their Notes on July 18, 2010, 2013 and 2018, as well as upon a change in control. If our common stock price is below the conversion price of the debenture on the
earliest of these dates, we anticipate that noteholders will require us to repurchase their outstanding notes. In October 2008, the Company purchased $35.5 million face value of the Notes from
certain Noteholders for $28.4 million. This will result in a pre-tax gain from the early extinguishment of debt of approximately $7 million in the first quarter of fiscal
2009. Such $35.5 million face value of the Notes has remained classified as long-term debt in the accompanying consolidated balance sheet at September 30, 2008.

The
Company's Employee Stock Ownership Plan ("ESOP") has a loan agreement guaranteed by the Company, the proceeds of which were used to purchase equity securities of the Company. The
loan bears interest at rates based upon the prime rate or LIBOR In addition, the ESOP had a $5 million line of credit that expired on October 31, 2008. In September 2008, $630,000 was
drawn under the ESOP line of credit to purchase equity securities associated with the rights offering and was outstanding at September 30, 2008. In October 2008, the remaining balance of the
available ESOP line of credit was drawn for the purpose of purchasing additional equity securities in the Company. In accordance with the terms of the ESOP line of credit agreement, the
$5 million outstanding at October 31, 2008 was refinanced along with the balance of the then outstanding ESOP loan amount of $1.25 million. The new ESOP loan provides for
quarterly payments of principal and interest through September 2012, at which time the balance of the loan of approximately $3.9 million will be payable. The $630,000 outstanding on the ESOP
line of credit at September 30, 2008 has been classified as long-term debt in the accompanying consolidated balance sheet at that date.

In
May 2008, the Company's Board of Directors approved a plan to exit substantially all operating activities of the Installation Services segment in 2008. In the third quarter of fiscal
2008, the Company sold nine units to one buyer, closed one unit and merged two units into its Garage Doors segment. In the fourth quarter of fiscal 2008, the Company sold its two remaining units in
Phoenix and Las Vegas. The Company recorded aggregate disposal costs of $43.7 million in fiscal 2008. The Company is winding down remaining disposal activities in the first half of fiscal 2009
and does not expect to incur significant expenses in the future. Future net cash outflows to satisfy liabilities that were accrued as of September 30, 2008 are estimated to range between
$7 million and $8 million. Substantially all of such liabilities are expected to be paid within the next twelve months.

28

---



During
fiscal 2008, the Company used cash from operating activities of discontinued operations of $5.4 million. During fiscal 2008, cash provided from investing activities of
discontinued operations was $5.5 million, primarily from the proceeds from the sale of certain assets.

Anticipated
cash flows from operations, together with existing cash and cash equivalents, bank lines of credit and lease line availability, should be adequate to finance presently
anticipated working capital and capital expenditure requirements and to repay long-term debt as it matures.

Contractual Obligations

At September 30, 2008, payments to be made pursuant to significant contractual obligations are as follows:

(in thousands)
Year

Purchase Obligations(1)

Capital Expenditures

Capitalized Leases

Operating Leases

Debt Repayments(2)

Interest

Total2009

$
110,842

$
3,333

$
1,536

$
22,000

$
1,479

$
9,135

$
148,3252010


2,872





1,582


15,000


131,594


7,828


158,8762011


325





1,435


11,000


1,518


2,137


16,4152012








1,438


8,000


4,710


1,532


15,6802013








1,432


5,000


79,772


697


86,901Thereafter








11,632


1,000


13,336


2,471


28,439


---

ACCOUNTING POLICIES AND PRONOUNCEMENTS

Critical Accounting Policies

The Company's significant accounting policies are set forth in Note 1 of Notes to Consolidated Financial Statements. The
following discussion of critical accounting policies addresses those policies that require management judgment and estimates and are most important in determining the Company's operating results and
financial condition.

The
Company recognizes revenues for most of its operations when title and the risks of ownership pass to its customers. Provisions for estimated losses resulting from the inability of
our customers to remit payments are recorded in the Company's consolidated financial statements. Judgment is required to estimate the ultimate realization of receivables, including specific reviews
for collectibility when, based on an evaluation of facts and circumstances, the Company may be unable to collect amounts owed to it, as well as estimation of overall collectibility of those
receivables that have not required specific review.

29

---



The
Company's Electronic Information and Communication Systems segment does a significant portion of its business under long-term contracts. This unit generally recognizes
contract-related revenue and profit using the percentage of completion method of accounting, which relies on estimates of total expected contract costs. A significant amount of judgment is required to
estimate contract costs, including estimating many variables such as costs for material, labor and subcontracting costs, as well as applicable indirect costs. The Company follows this method of
accounting for its long-term contracts since reasonably dependable estimates of costs applicable to various elements of a contract can be made. Since the financial reporting of these
contracts depends on estimates, recognized revenues and profit are subject to revisions as contracts progress to completion. Contract cost estimates are generally updated quarterly. Revisions in
revenue and profit estimates are reflected in the period in which the circumstances requiring the revision become known. Provisions are made currently for anticipated losses on uncompleted contracts.

Inventories
are stated at the lower of cost (principally first-in, first-out) or market. Inventory valuation requires the Company to use judgment to estimate any
necessary allowances for excess, slow-moving and obsolete inventory, which estimates are based on assessments about future demands, market conditions and management actions.

The
Company sponsors several defined benefit pension plans. The amount of the Company's liability for pension benefits and the amount of pension expense recognized in the financial
statements is determined using actuarial assumptions such as the discount rate, the long-term rate of return on plan assets and the rate of compensation increases. Judgment is required to
annually
determine the rates to be used in performing the actuarial calculations. The Company evaluates these assumptions with its actuarial and investment advisors and believes that they are within accepted
industry ranges. In 2008, the discount rate was raised to reflect current market conditions.

Upon
acquisition, the excess of cost over the fair value of an acquired business' net assets is recorded as goodwill. Annually, in its fourth fiscal quarter, the Company evaluates
goodwill for impairment by comparing the carrying value of its operating units to estimates of the related operation's fair values. An evaluation would also be performed if an event occurs or
circumstances change such that the estimated fair value of the Company's operating units would be reduced below its carrying value.

The
Company depreciates property, plant and equipment on a straight-line basis over their estimated useful lives, which are based upon the nature of the assets and their
planned use in the Company's operations. Events and circumstances, such as changes in operating plans, technological change or regulatory matters could affect the manner in which
long-lived assets are held and used. Judgment is required to establish depreciable lives for operating assets and to evaluate events or circumstances for indications that the value of
long-lived assets has been impaired.

Income
taxes include current year amounts that are payable or refundable and deferred taxes reflecting the Company's estimate of the future tax consequences of temporary differences
between amounts reflected in the financial statements and their tax basis. Changes in tax laws and rates may affect the amount of recorded deferred tax assets and liabilities.

Off-Balance Sheet Arrangements

Except for operating leases and purchase obligations as disclosed herein, the Company is not a party to any off-balance
sheet arrangements.

New Accounting Pronouncements

Adoption of new accounting pronouncements

In February 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 155, "Accounting for Certain Hybrid Financial Instrumentsan amendment of Financial Accounting Standards SFAS No. 133 and 140." SFAS No. 155

30

---



allows
companies to elect to measure at fair value entire financial instruments containing embedded derivatives that would otherwise have to be accounted for separately. It also requires companies to
identify interests in securitized financial assets that are freestanding derivatives or contain embedded derivatives that would have to be accounted for separately, clarifies which interest- and
principal-only strips are subject to SFAS No. 133, and amends SFAS No. 140 to revise the conditions of a qualifying special purpose entity due to the new requirement to
identify whether interests in securitized financial assets are freestanding derivatives or contain embedded derivatives. SFAS No. 155 was effective for the Company for all financial instruments
acquired, issued or subject to a remeasurement event after October 1, 2007. The adoption of SFAS 155 did not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.

In
March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assetsan amendment of SFAS No. 140." SFAS No. 156 requires the
recognition of a servicing asset or liability each time a company undertakes an obligation to service a financial asset in certain situations. It requires all separately recognized servicing assets
and liabilities to be initially measured at fair value, if practical. SFAS No. 156 was effective for the Compnay on October 1, 2007. The adoption of SFAS 156 did not have a
material effect on the Company's financial position, results of operations or cash flows.

In
June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN 48 was effective for the Company in its first quarter of fiscal 2008. As such, the Company adopted FIN 48 on
October 1, 2007. The cumulative effect of adopting FIN 48 resulted in a favorable adjustment to retained earnings of approximately $4,669 and had no effect on the Company's consolidated
results of operations.

Effect of newly issued but not yet effective accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB
issued FASB Staff Position No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement Under Statement 13" ("FSP 157-1") and FASB Staff Position No. 157-2, "Effective Date of FASB Statement
No. 157" ("FSP 157-2"). FSP 157-1 amends SFAS 157 to exclude various accounting pronouncements that address fair value measurements for purposes of lease
classification or measurement under Statement 13, with the exception of assets or liabilities assumed in a business combination that are required to be measured at fair value under SFAS 141 or
SFAS 141(R). In October 2008, the FASB issued FASB Staff Position No. 157-3 ("FSP 157-3") which clarifies the application of SFAS 157 in a market that is
not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-1 is
effective upon the adoption of SFAS 157. FSP 157-2 defers the effective date of SFAS 157 to the Company's fiscal years beginning October 1, 2009 for all nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of
SFAS 157 are effective for the Company's fiscal years beginning October 1, 2008 for financial assets and financial liabilities. The Company does not believe that the adoption of
SFAS 157 and FSP 157-1 will have a material effect on its consolidated financial position, results of operations or cash flows. The Company is currently evaluating the impact that
the adoption of FSP 157-2 may have on its consolidated financial position, results of operations or cash flows.

31

---



In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities, Including an amendment of FASB Statement No. 115"
("SFAS 159"). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.
SFAS 159 is effective for the Company as of October 1, 2008. The Company does not believe that the adoption of SFAS 159 will have a material effect on its consolidated financial
position, results of operations or cash flows.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"). The purpose of issuing the statement is to replace current guidance in
SFAS 141 to better represent the economic value of a business combination transaction. The changes to be effected with SFAS 141R from the current guidance include, but are not limited
to: (1) acquisition costs will be recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition will be considered part of the
liabilities acquired measured at their fair value; all other contingencies will be part of the liabilities acquired measured at their fair value only if it is more likely
than not that they meet the definition of a liability; (3) contingent consideration based on the outcome of future events will be recognized and measured at the time of the acquisition;
(4) business combinations achieved in stages (step acquisitions) will need to recognize the identifiable assets and liabilities, as well as noncontrolling interests, in the acquiree, at the
full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total acquisition-date fair value of the identifiable net assets
acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree) will require that excess to be recognized as a gain attributable to the acquirer. The
Company does anticipate that the adoption of SFAS 141R will have an impact on the way in which business combinations will be accounted for compared to current practice. SFAS 141R will be
effective for any business combinations that occur after October 1, 2009.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51" ("SFAS 160").
SFAS 160 was issued to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way, that is, as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS 160 is effective for the Company as of October 1, 2009. The Company
does not believe that the adoption of SFAS 160 will have a material effect on its consolidated financial position, results of operations or cash flows.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan Amendment of FASB Statement 133" which enhances
required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and
related hedged items are accounted for under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities"; and (c) derivative instruments and related hedged
items affect an entity's financial position, financial performance and cash flows. Although early adoption is encouraged, SFAS 161 is effective for the Company as of October 1, 2009. The
Company does not believe that the adoption of SFAS 161 will have a material effect on its consolidated financial position, results of operations or cash flows.

In
April 2008, the FASB issued FASB Staff Position No. 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3"). FSP 142-3
amends the factors that should be considered in developing renewal or extension assumptions that are used to determine the useful life of a recognized intangible asset under SFAS No. 142,
"Goodwill and Other Intangible Assets", and requires enhanced related disclosures. FSP 142-3 must be applied prospectively to all intangible assets acquired as of and subsequent to fiscal
years beginning after December 15, 2008, the Company's fiscal year 2010. The Company is currently in the process of determining the effect, if any, that the adoption of FSP 142-3
may have on its consolidated financial position, results of operations or cash flows.

32

---



In
May 2008, the FASB issued Staff Positions APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)" ("APB 14-1") to clarify that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by
paragraph 12 of APB Opinion No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants". Additionally, APB 14-1 specifies that issuers of
such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. APB 14-1 is effective for the Company as of October 1, 2009. The Company is currently evaluating the impact that the adoption of
APB 14-1 may have on its consolidated financial position, results of operations or cash flows.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements. All statements other than statements of
historical fact, including, without limitation, statements regarding the Company's financial position, business strategy and the plans and objectives of the Company's management for future operations,
are forward-looking statements. Without limiting the generality of the foregoing, in some cases you can identity forward-looking statements by terminology such as "may," "will," "should," "would,"
"could," "anticipate," "believe," "estimate," "expect," "plan," "intend" or the negative of these expressions or comparable terminology. Such forward-looking statements involve important risks and
uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements. These risks
and uncertainties include, among others: general domestic and international business, financial market and economic conditions; the credit market; the housing market; results of integrating acquired
businesses into existing operations; the results of the Company's restructuring and disposal efforts; competitive factors; pricing pressures for resin and steel; and capacity and supply constraints.
Readers are cautioned not to place undue reliance on these forward-looking statements. The Company does not undertake any obligation to release publicly any revisions to these forward-looking
statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

Item 8.    Financial Statements and Supplementary Data

The financial statements of the Company and its subsidiaries and the report thereon of Grant Thornton LLP are included herein:



33

---







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Shareholders Griffon Corporation

We
have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware corporation) and subsidiaries (the "Company") as of September 30, 2008 and 2007,
and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2008. Our audits of the basic financial
statements included the financial statement schedules listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Griffon Corporation and subsidiaries as of
September 30, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2008 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information set forth therein.

As
discussed in Note 1 of the notes to consolidated financial statements, the Company has adopted the provisions of Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, effective October 1, 2007.

As
discussed in Note 5 of the notes to consolidated financial statements, the Company has adopted the recognition and disclosure provisions of Financial Accounting Standards Board
Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans: an amendment of FASB Statements No. 87, 88, 106 and 132(R), effective
September 30, 2007.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Griffon Corporation and subsidiaries' internal control over
financial reporting as of September 30, 2008 based on criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated December 11, 2008 expressed an unqualified opinion thereon.

/s/
GRANT THORNTON LLP
Melville, New York
December 11, 2008

34

---





GRIFFON CORPORATION        CONSOLIDATED BALANCE SHEETS        (in thousands, except share data)

September 30,2008

2007ASSETSCURRENT ASSETS:Cash and cash equivalents

$
311,921

$
44,747Accounts receivable, less allowance for doubtful accounts of $5,609 in 2008 and $6,337 in 2007


163,586


172,333Contract costs and recognized income not yet billed


69,001


77,184Inventories


167,158


143,962Prepaid expenses and other current assets


52,430


44,525Assets of discontinued operations


9,495


66,042Total current assets


773,591


548,793PROPERTY, PLANT AND EQUIPMENT, at cost, net of depreciation and amortization


239,003


230,232COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED


93,782


108,417INTANGIBLE ASSETS, net


34,777


38,242OTHER ASSETS


22,067


17,596ASSETS OF DISCONTINUED OPERATIONS


8,346


16,578$
1,171,566

$
959,858LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:Notes payable and current portion of long-term debt

$
2,258

$
3,392Accounts payable


129,823


99,007Accrued liabilities


62,643


60,764Income taxes


1,807


14,153Liabilities of discontinued operations


14,917


17,287Total current liabilities


211,448


194,603LONG-TERM DEBT


230,930


229,438OTHER LIABILITIES


59,460


62,429LIABILITIES OF DISCONTINUED OPERATIONS


10,048


6,449Total Liabilities


511,886


492,919COMMITMENTS AND CONTINGENCIESSHAREHOLDERS' EQUITY:Preferred stock, par value $.25 per share, authorized 3,000,000 shares, no shares issued





Common stock, par value $.25 per share, authorized 85,000,000 shares, issued 71,095,399 shares in 2008 and 42,328,821 shares in 2007


17,774


10,582Capital in excess of par value


415,505


180,022Retained earnings


415,991


461,163Treasury shares, at cost, 12,440,015 common shares in 2008 and 12,399,115 common shares in 2007


(213,310
)

(212,731
)Accumulated other comprehensive income


25,469


29,522Deferred compensation


(1,749
)

(1,619
)Total shareholders' equity


659,680


466,939$
1,171,566

$
959,858


The accompanying notes to consolidated financial statements are an integral part of these statements.

35

---





GRIFFON CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)

Years ended September 30,2008

2007

2006Net sales

$
1,269,305

$
1,365,729

$
1,327,735Cost of sales


996,308


1,071,173


1,007,028Gross profit


272,997


294,556


320,707Selling, general and administrative expenses


246,243


243,400


245,112Impairment of goodwill


12,913





Restructuring and other related charges


2,610


2,501


Total operating expenses


261,766


245,901


245,112Income from operations


11,231


48,655


75,595Other income (expense):Interest expense


(11,532
)

(12,508
)

(10,492
)Interest income


1,970


2,397


1,780Other, net


2,713


2,892


2,262(6,849
)

(7,219
)

(6,450
)Income from continuing operations before income taxes


4,382


41,436


69,145Provision for income taxes


4,294


13,271


23,289Income from continuing operations before discontinued operations


88


28,165


45,856Discontinued operations:Income (loss) from operations of the discontinued
Installation Services business


(62,447
)

(9,804
)

9,553Provision (benefit) for income taxes


(21,856
)

(3,718
)

3,623Income (loss) from discontinued operations


(40,591
)

(6,086
)

5,930Net income (loss)

$
(40,503
)
$
22,079

$
51,786Basic earnings (loss) per share:Continuing operations

$
.00

$
.87

$
1.42Discontinued operations


(1.24
)

(.19
)

.18$
(1.24
)
$
.68

$
1.60Diluted earnings (loss) per share:Continuing operations

$
.00

$
.84

$
1.36Discontinued operations


(1.24
)

(.19
)

.17$
(1.24
)
$
.65

$
1.53Weighted-average shares outstandingbasic


32,667


32,405


32,388Weighted-average shares outstandingdiluted


32,836


33,357


33,746


The
accompanying notes to consolidated financial statements are an integral part of these statements.

36

---





GRIFFON CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Years ended September 30,2008

2007

2006Cash flows from operating activitiescontinuing operations:Net income (loss)

$
(40,503
)
$
22,079

$
51,786Loss (income) from discontinued operations


40,591


6,086


(5,930
)Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:Depreciation and amortization


43,735


40,356


33,974Impairment of goodwill


12,913





Stock-based compensation


3,327


2,412


1,711Provision for losses on accounts receivable


1,089


649


863Amortization of deferred financing costs


590





Deferred income taxes


212


(10,004
)

(4,012
)Change in assets and liabilities:(Increase) decrease in accounts receivable and contract costs and recognized income not yet billed


13,585


20,174


(68,557
)(Increase) decrease in inventories


(23,500
)

3,651


(12,117
)(Increase) decrease in prepaid expenses and other assets


(12,524
)

(141
)

739Increase (decrease) in accounts payable, accrued liabilities and income taxes payable


53,095


(28,458
)

21,438Other changes, net


(6,561
)

2,894


(541
)126,552


37,619


(32,432
)Net cash provided by operating activitiescontinuing operations


86,049


59,698


19,354Cash flows from investing activitiescontinuing operations:Acquisition of property, plant and equipment


(53,116
)

(29,737
)

(41,653
)Acquired businesses


(1,829
)

(818
)

(1,304
)Proceeds from sale of investment


1,000





(Increase) decrease in equipment lease deposits


4,593


(6,092
)

(1,988
)Funds restricted for capital projects





(4,521
)

Net cash used in investing activitiescontinuing operations


(49,352
)

(41,168
)

(44,945
)Cash flows from financing activitiescontinuing operations:Proceeds from issuance of shares from rights offering


241,344





Purchase of shares for treasury


(579
)

(4,355
)

(19,811
)Proceeds from issuance of long-term debt


89,235


47,891


74,000Payments of long-term debt


(87,785
)

(27,650
)

(69,892
)Decrease in short-term borrowings


(924
)

(5,834
)

(398
)Financing costs of rights offering and credit facilities


(10,027
)




Exercise of stock options





2,588


2,639Tax benefit from exercise of stock options


3


1,346


4,136Distributions to minority interest








(354
)Other, net


139


271


(179
)Net cash provided by (used in) financing activities continuing operations


231,406


14,257


(9,859
)Cash flows from discontinued operations:Net cash provided by (used in) operating activities


(5,410
)

5,963


(3,070
)Net cash provided by (used in) investing activities


5,496


(17,184
)

(454
)Net cash provided by (used in) discontinued operations


86


(11,221
)

(3,524
)Effect of exchange rate changes on cash and cash equivalents


(1,015
)

792


700Net increase (decrease) in cash and cash equivalents


267,174


22,358


(38,274
)Cash and cash equivalents at beginning of year


44,747


22,389


60,663Cash and cash equivalents at end of year

$
311,921

$
44,747

$
22,389Supplemental disclosures of cash flow information:Cash paid for:Interest

$
8,303

$
9,230

$
7,462Income taxes

$
6,207

$
22,943

$
30,814Non-cash financing activities:Stock subscriptions receivable pursuant to rights offering

$
5,274








The accompanying notes to consolidated financial statements are an integral part of these statements.

37

---





GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 2008, 2007 and 2006
(in thousands, except share data)

COMMON STOCK





TREASURY SHARES

ACCUMULATED
OTHER
COMPREHENSIVE
INCOMECAPITAL IN
EXCESS OF
PAR VALUE

RETAINED
EARNINGS

DEFERRED
COMPENSATION



COMPREHENSIVE
INCOME (LOSS)SHARES

PAR VALUE

SHARES

COST

TotalBalances, October 1, 2005


40,741,748

$
10,186

$
151,365

$
387,298


10,502,896

$
(170,826
)
$
(13,598
)
$
(2,471
)
$
361,954Foreign currency translation adjustment




















8,642





8,642

$
8,642Minimum pension liability adjustment




















4,550





4,550


4,550Net income











51,786














51,786


51,786Comprehensive income




























$
64,978Amortization of deferred compensation























549


549Purchase of treasury shares














813,501


(19,811
)







(19,811
)Exercise of stock options


881,307


220


9,632





463,065


(11,207
)







(1,355
)Stock-based compensation








1,591














(120
)

1,471Tax benefit from exercise of stock options








4,136

















4,136Other


5,004


1


522

















523Balances, September 30, 2006


41,628,059


10,407


167,246


439,084


11,779,462


(201,844
)

(406
)

(2,042
)

412,445Foreign currency translation adjustment




















28,477





28,477

$
28,477Minimum pension liability adjustment




















2,972





2,972


2,972Net income











22,079














22,079


22,079Comprehensive income




























$
53,528Amortization of deferred compensation























543


543Purchase of treasury shares














208,300


(4,355
)







(4,355
)Exercise of stock options


628,307


157


8,731





411,353


(6,532
)







2,356Stock-based compensation








2,291














(120
)

2,171Tax benefit from exercise of stock options








1,346

















1,346Impact of the adoption of SFAS No. 158 on September 30, 2007)




















(1,521
)




(1,521
)Other


72,455


18


408

















426Balances, September 30, 2007


42,328,821


10,582


180,022


461,163


12,399,115


(212,731
)

29,522


(1,619
)

466,939Foreign currency translation adjustment




















(6,061
)




(6,061
)
$
(6,061
)Minimum pension liability adjustment




















2,008





2,008


2,008Net loss











(40,503
)













(40,503
)

(40,503
)Comprehensive loss




























$
(44,556
)Amortization of deferred compensation























(221
)

(221
)Purchase of treasury shares














40,900


(579
)







(579
)Stock-based compensation








3,236














91


3,327Issuance of deferred shares


275,000


69


(69
)
















Tax benefit from exercise of stock options








3

















3Issuance of common stock pursuant to rights offering, net of costs of $7,111


28,393,323


7,098


232,409

















239,507Impact of the adoption of FIN 48











(4,669
)













(4,669
)Other


98,255


25


(96
)
















(71
)Balances, September 30, 2008


71,095,399

$
17,774

$
415,505

$
415,991


12,440,015

$
(213,310
)
$
25,469

$
(1,749
)
$
659,680


The accompanying notes to consolidated financial statements are an integral part of these statements.

38

---





GRIFFON CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of Griffon Corporation and all subsidiaries (the "Company"). All significant
intercompany items have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the prior-years' consolidated financial statements to conform to the current-year's
presentation.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates estimates, including those related to bad debts, percentage of
completion on long-term contracts, inventory reserves, valuation of goodwill and intangible assets and valuation of deferred taxes. The Company bases its estimates on historical data and
experience, when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the
basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

Financial instruments and credit risk

The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents.
Cash equivalents primarily consist of overnight commercial paper, highly-rated (AAAm) liquid money market funds backed by U.S. Treasury securities and U.S. Agency securities, as well as insured bank
deposits. The Company had cash in foreign bank accounts of approximately $22,850 and $8,579 at September 30, 2008 and 2007, respectively.

The
carrying values of cash and cash equivalents, accounts receivable, accounts and notes payable and revolving credit debt approximate fair value due to either the
short-term nature of such instruments or the fact that the interest rate of the revolving credit debt is based upon current market rates. The Company's 4% convertible notes are not listed
for trading on any exchange and due to the complex nature of the notes, it is not practicable to determine their fair value.

Comprehensive income (loss)

Comprehensive income (loss) is presented in the consolidated statements of shareholders' equity and consists of net income (loss) and
other items of comprehensive income (loss) including minimum pension liability adjustments and foreign currency translation adjustments.

The
components of accumulated other comprehensive loss at September 30, 2008 were a foreign currency translation adjustment of $39,028 and a minimum pension liability adjustment
of $(13,560), net of taxes of $7,577. The components of accumulated other comprehensive income (loss) at September 30, 2007 were a foreign currency translation adjustment of $45,089 and a
minimum pension liability adjustment of $(15,567), net of taxes of $7,464. At September 30, 2006, accumulated other

39

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

comprehensive
income (loss) consisted of a foreign currency translation adjustment of $16,612, and a minimum pension liability adjustment of $(17,018), net of taxes of $9,163.

Foreign currency translation

The financial statements of foreign subsidiaries were prepared in their respective local currencies and translated into U.S. Dollars
based on the current exchange rates at the end of the period or historical exchange rates, as appropriate, for the balance sheet and average exchange rates for results of operations and cash flows.
Gains and losses resulting from translation are recorded in accumulated other comprehensive income (loss).

The
Company's foreign subsidiaries routinely engage in business transactions denominated in currencies other than their local currency. As such, foreign transaction gains (losses)
included in net income (loss) were $(5), $1,570 and $1,100 for the years ended September 30, 2008, 2007 and 2006, respectively.

Revenue recognition

The Company recognizes revenue in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 104,
"Revenue Recognition" ("SAB 104"). Under SAB 104, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered, the sales
price is determinable and collectability is reasonably assured. The Company sells its goods on terms which transfer title and risk of loss at a specified location, typically shipping point. Revenue
recognition from product sales occurs when all factors are met, including transfer of title and risk of loss, which occurs either upon shipment by the Company or upon receipt by customers at the
location specified in the terms of sale. Other than standard product warranty provisions, the Company's sales arrangements provide for no other, or insignificant, post-shipment
obligations. The Company does offer rebates and other sales incentives, promotional allowances or discounts, from time to time and for certain customers, typically related to customer purchase volume,
all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale. The Company provides for an allowance for sales returns based upon its historical
experience of sales returns. Sales are presented net of sales tax collected and remitted to governmental authorities.

The
Electronic Information and Communication Systems segment earns a substantial portion of its revenues as either a prime or subcontractor from contract awards with the United States
Government, as well as foreign governments and other commercial customers. These contracts are typically long-term in nature, usually greater than one year, and are evidenced by formal
written contractual arrangements. Revenues and profits from these long-term fixed price contracts are recognized under the percentage-of-completion method of
accounting in accordance with American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 81-1, "Accounting for Performance of Construction-Type
and Certain Production-Type Contracts".

Revenues
and profits on fixed-price contracts that contain engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the
total estimated costs for each contract (cost-to-cost method). Using the cost-to-cost method, revenues are recorded at amounts equal to the ratio of
actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenues recognized in prior periods. The
profit recorded on a contract using this method is equal to the current

40

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

estimated
total profit margin multiplied by the cumulative revenues recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. As this method relies on the
substantial use of estimates, these projections may be revised throughout the life of a contract. Components of this formula and ratio that may be estimated include gross profit margin and total costs
at completion. The Company reviews cost performance and its estimates to complete on long-term contracts, at a minimum, on a quarterly basis, as well as when information becomes available
that would necessitate a review of the current estimate. Adjustments to estimates for a contract's estimated costs at completion and estimated profit or loss often are required as experience is
gained, and as more information is obtained, even though the scope of work required under the contract may or may not change, or if contract modifications occur. The impact of such adjustments or
changes to estimates is made on a cumulative basis in the period when such information has become known. The Company's gross profit is affected by a variety of factors, including the mix of products,
systems and services sold, production efficiencies, price competition and general economic conditions.

Revenue
and profits on cost-reimbursable type contracts are recognized as allowable costs are incurred on the contract, at an amount equal to the allowable costs plus the
estimated profit on those costs. The estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee arrangement. Incentive and award fees on these
contracts are recorded as revenue when the criteria under which they are earned are reasonably assured of being met and can be estimated.

For
contracts whose anticipated total costs exceed the total expected revenues, an estimated loss is recognized in the period when identifiable. A provision for the entire amount of the
estimated loss is recorded on a cumulative basis.

Amounts
representing contract change orders or claims are included in revenue only when they can be reliably estimated and their realization is probable, and are determined on a
percentage-of-completion basis measured by the cost-to-cost method.

The
Company records pre-contract costs in accordance with AICPA SOP 81-1 as follows:



Alternatively,
for contracts that are short-term in nature, generally less than one year, the Company recognizes revenue as deliveries are made or services have been
rendered. Revenues recognized under this method are recorded when there is evidence of a contractual arrangement indicating a fixed and determinable price, delivery has occurred or services have been
performed, collections can be reasonably assured, and title and risk of loss with respect to goods has passed to the buyer. For contracts that require acceptance at destination, revenue is recognized
when confirmation of the receipt of the goods is obtained or a fair and reasonable amount of time has lapsed from the date of shipment. Accumulated costs for contracts accounted for under this method
are included in inventories until revenue is recognized.

41

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Contract costs and recognized income not yet billed

Contract costs and recognized income not yet billed primarily relate to revenues on contracts that have been recognized for accounting
purposes under the percentage of completion method of accounting, recoverable costs and accrued profit on long-term contracts for which billings had not been presented to the customers
because the amounts were not billable at the balance sheet date, net of progress payments of $8,863 and $7,912 at September 30, 2008 and 2007, respectively. Amounts become billable when
applicable contractual terms are met. Such terms vary, and include the achievement of specified milestones, product delivery and stipulated progress payments.

Accounts receivable, allowance for doubtful accounts and concentrations of credit risk

Accounts receivable are customer obligations due under normal trade terms, which typically range from 30 to 45 days. A
substantial portion of the Company's trade receivables are from customers of the Garage Doors segment whose financial condition is dependent on the construction and related retail sectors of the
economy. In addition, a substantial portion of the Company's trade receivables are from one customer of the Specialty Plastic Films segment whose financial condition is dependent on the consumer
products and related sectors of the economy. The Electronic Information and Communication Systems segment sells its products to government agencies, domestic and international, as well as the
commercial trade, primarily involved in communication systems, radar systems and electronic systems to the defense industry. The Company performs continuing credit evaluations of its customers'
financial condition, and although the Company generally does not require collateral, letters of credit may be required from customers in certain circumstances.

Management
reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company records an allowance for doubtful accounts that
reflects the estimated accounts receivable that will not be collected. Provisions for estimated uncollectible accounts receivable are made for individual accounts based upon specific facts and
circumstances including criteria such as their age, amount, and customer standing. Provisions are also made for other accounts receivable not specifically reviewed based upon historical experience.
Based on the information available, the Company believes that its allowance for doubtful accounts as of September 30, 2008 and 2007 was adequate.

Inventories

Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor
and manufacturing overhead costs and are comprised of the following:

September 30,2008

2007Finished goods

$
50,859

$
48,352Work in process


70,716


52,404Raw materials and supplies


45,583


43,206$
167,158

$
143,962


42

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property, plant and equipment

Depreciation of property, plant and equipment is provided on a straight-line basis over the estimated useful lives of the
assets.

Estimated
useful lives for property, plant and equipment are as follows: buildings and building improvements25 to 40 years; machinery and equipment2 to
15 years and leasehold improvementsover the life of the lease or life of the improvement, whichever is shorter. Major improvements are capitalized and minor replacements,
maintenance and repairs are charged to expense as incurred. Capitalized interest costs included in property, plant and equipment were $511, $454 and $0 for the years ended September 30, 2008,
2007 and 2006, respectively. The original cost of fully-depreciated property, plant and equipment remaining in use at September 30, 2008 is approximately $123,000.

Property,
plant and equipment consists of the following:

September 30,2008

2007Land, buildings and building improvements

$
108,344

$
90,037Machinery and equipment


390,282


369,813Leasehold improvements


21,832


20,444520,458


480,294LessAccumulated depreciation and amortization


281,455


250,062$
239,003

$
230,232


Costs in excess of fair value of net assets of businesses acquired ("Goodwill") and other intangible assets

Goodwill is carried at cost. Goodwill, to the extent deductible, is typically amortized over fifteen years for tax purposes but not
amortized for financial reporting purposes. Goodwill is subject to an annual test for impairment at the reporting unit level (operating segment or one level below an operating segment) and between
annual tests in certain circumstances. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), the Company tests
goodwill for impairment on an annual basis as of September 30th or more frequently if the Company believes indicators of impairment might exist. The performance of the test involves a
two-step process. The first step of the impairment test involves comparing the fair value of the Company's reporting units with the reporting unit's carrying amount, including goodwill.
The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the expected present value of future cash flows and the market
valuation approach. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, the Company performs the second step of the goodwill impairment test to determine the amount of
impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill.

Intangible
assets other than goodwill are carried at cost less accumulated amortization. For financial reporting purposes, intangible assets with definite lives are generally amortized
on a straight-line basis over the useful lives of the respective assets, generally eight to twenty-five years. The intangible assets, to the extent deductible, are generally
amortized over fifteen years for tax purposes.

43

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Long-lived
assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.
Measurement of any impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the amount the carrying value
exceeds the fair value of the asset.

The
Company performed its annual impairment test of goodwill and indefinite-lived intangible assets based on conditions as of September 30, 2008, in accordance with
SFAS 142, and determined that goodwill in its Garage Doors segment was impaired, necessitating its write-off of $12,913.

The
changes in the carrying amounts of goodwill are as follows:

Consolidated

Electronic
Information and
Communication
Systems

Garage
Doors

Specialty
Plastic
FilmsBalance, October 1, 2006

$
99,540

$
19,418

$
12,913

$
67,209Goodwill acquired during the year


1,186








1,186Currency translation adjustments


8,564








8,564Other


(873
)

(873
)




Balance, September 30, 2007


108,417


18,545


12,913


76,959Goodwill impairment during the year


(12,913
)




(12,913
)

Currency translation adjustments


(1,722
)







(1,722
)Balance, September 30, 2008

$
93,782

$
18,545

$


$
75,237


The
changes in other intangible assets were as follows:

September 30, 2008

September 30, 2007Cost

Accumulated
amortization

Cost

Accumulated
amortizationCustomer relationships

$
29,507

$
4,162

$
29,882

$
2,904Unpatented technology


6,002





10,621


Other


4,160


730


1,170


527Total

$
39,669

$
4,892

$
41,673

$
3,431


In
December 2007, the Electronic Information and Communication Systems segment acquired certain assets and assumed certain liabilities of a video surveillance systems integration
business. The purchase price was approximately $1,750 in cash plus performance-based cash payments over a three-year period of up to $1,750. The purchase price has been allocated to other
intangible assets.

Amortization
expense for intangible assets subject to amortization was approximately $1,574, $1,764 and $1,609 for the years ended September 30, 2008, 2007 and 2006, respectively.
Amortization expense for each of the next five years is estimated to be as follows 2009$1,450; 2010$1,434; 2011$1,402; and 2012$1,367;
2013$1,361. The weighted average amortization period for intangible assets was 25 years at September 30, 2008 and 2007.

44

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income taxes

The Company provides for income taxes using the liability method. Deferred taxes reflect the net tax effects of temporary differences
between the carrying amount of
assets and liabilities for financial reporting and income tax purposes, as determined under enacted tax laws and rates. The effect of changes in tax laws or rates is accounted for in the period of
enactment.

The
provision for income taxes from continuing operations is comprised of the following:

2008

2007

2006Current

$
4,082

$
23,275

$
27,301Deferred


212


(10,004
)

(4,012
)$
4,294

$
13,271

$
23,289




2008

2007

2006Federal

$
7,170

$
9,070

$
17,942Foreign


1,105


2,465


1,843State and local


(3,981
)

1,736


3,504$
4,294

$
13,271

$
23,289


The
components of income from continuing operations before income taxes are as follows:

2008

2007

2006Domestic

$
(14,019
)
$
26,004

$
57,770Foreign


18,401


15,432


11,375$
4,382

$
41,436

$
69,145


The
provision for income taxes from continuing operations includes current U.S. federal income taxes of $6,064 in 2008, $14,958 in 2007 and $21,855 in 2006. The Company intends to
carryback the fiscal 2008 consolidated U.S. federal tax loss, inclusive of continuing and discontinuing operations, for a refund of federal taxes of $15,637. The Company has not recorded deferred
income taxes on the undistributed earnings of its foreign subsidiaries because of management's intent to indefinitely reinvest such earnings. At September 30, 2008, the Company's share of the
undistributed earnings of the foreign subsidiaries amounted to approximately $38,000.

The
Company's provision for income taxes from continuing operations includes a benefit of $11,422 in 2008, $1,426 in 2007 and $1,359 in 2006 reflecting the resolution of certain
previously recorded tax liabilities principally due to the resolution of certain tax audits and due to the closing of certain statutes for prior years' tax returns. Approximately $1,705 related to
accrued interest was included in the aforementioned reversal of previously-established FIN 48 reserves.

On
October 1, 2007, the Company adopted FASB Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
No. 109" ("FIN 48"). FIN 48 prescribes a recognition criteria and a related measurement model for tax positions taken by companies. FIN 48 prescribes a recognition
threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement,

45

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

classification,
interest and penalties, accounting in interim periods, disclosure and transition rules. The total amount of unrecognized tax benefits as of the date of adoption was $21,646. The
adoption of
FIN 48 resulted in an adjustment to beginning retained earnings of $4,669 and did not have any impact on the Company's results of operations. Included in the balance of unrecognized tax
benefits at October 1, 2007 are $20,867 of tax benefits that, if recognized, would impact the effective tax rate. The total amount of unrecognized tax benefits as of September 30, 2008
is $11,634. The entire amount of unrecognized tax benefits, if recognized, would reduce the effective tax rate. With regard to the unrecognized tax benefits as of September 30, 2008, the
Company believes it is reasonably possible that approximately $1,000 of such unrecognized tax benefits could be recognized in the next twelve months, which would impact the effective tax rate if
recognized.

Unrecognized
tax benefits activity for the year ended September 30, 2008 is summarized below:

Balance at October 1, 2007

$
21,646Additions based on tax positions related to the current year


1,244Reductions based on tax positions related to prior years


(10,086
)Reductions relating to expiration of statutes


(1,066
)Reductions relating to settlements with taxing authorities


(104
)Balance at September 30, 2008

$
11,634


The
Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At October 1, 2007 and September 30, 2008, the
combined amount of accrued interest and penalties related to tax positions taken or to be taken on our tax returns and recorded as part of the reserves for uncertain tax positions was $2,963 and
$1,982, respectively.

As
a result of the Company's global operations, Griffon or its subsidiaries file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions.
The Company is routinely subject to examination by taxing authorities throughout the world, including such jurisdictions as Germany, Canada, Brazil, Sweden and the U.S. The Company's U.S. federal
income tax returns are no longer subject to income tax examination for years before fiscal 2005, the Company's German income tax returns are no longer subject to income tax examination for years
before fiscal 2006 and the Company's major U.S. state and other foreign jurisdictions are no longer subject to income tax examinations for years before fiscal 2000. Various U.S. state and foreign tax
audits are currently underway.

46

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The
following table indicates the significant elements contributing to the difference between the U.S. Federal statutory tax rate and the Company's effective tax rate from continuing
operations:

2008

2007

2006U.S. federal statutory tax rate


35.0
%

35.0
%

35.0
%State taxes


(8.7
)

2.7


3.3Foreign taxes


21.3


(4.7
)

(3.1
)German income tax rate adjustment





(2.4
)

Resolution of contingencies


(208.5
)

(2.7
)

(2.0
)Non-deductible goodwill


103.1





Foreign dividends


42.7


4.8


(3.8
)Valuation allowance


95.8





4.9Meals and entertainment


5.9


.7


.4Foreign purchase price adjustment


9.7





Other


1.7


(1.4
)

(1.0
)Effective tax rate


98.0
%

32.0
%

33.7
%


Total
deferred tax assets (liabilities) consist of:

September 30,2008

2007Deferred tax assets:Bad debt reserves

$
2,704

$
2,597Inventory reserves


5,532


6,280Deferred compensation


17,690


18,458Compensation and benefits


2,690


1,038Insurance reserve


4,122


3,981Interest carryforward


2,154


1,438Restructuring reserve


2,532


Warranty reserves


2,646


3,139Net operating loss and foreign tax credit


13,284


8,525Other reserves and accruals


1,589


2,76054,943


48,216Valuation allowance


(8,040
)

(3,841
)Total deferred tax assets


46,903


44,375Deferred tax liabilities:Deferred income


(513
)

(1,190
)Goodwill


(5,942
)

(4,673
)Depreciation and amortization


(16,651
)

(17,546
)Interest


(13,380
)

(10,373
)Other


(1,302
)

(1,586
)Total deferred tax liabilities


(37,788
)

(35,368
)Net deferred tax assets

$
9,115

$
9,007


47

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will be realized.
Ultimately, the realization of the deferred tax asset is dependent upon the generation of sufficient future taxable income during those periods in which temporary differences become deductible and/or
net operating loss and tax credit carryforwards can be utilized. Management considers the level of historical taxable income, scheduled reversal of taxable temporary differences, tax planning
strategies and projected future taxable income. Based on these considerations, management believes it is more likely than not that the Company will realize the benefit of its deferred tax asset, net
of the September 30, 2008 valuation allowance. The deferred tax asset valuation allowance of $8,040 as of September 30, 2008 relates to foreign tax credit carryforwards which will expire
at various times beginning in the fiscal year ended September 30, 2014. The valuation allowance increased by $4,199 during the fiscal year ended September 30, 2008 as a result of
additional foreign tax credits generated.

The
Company has various state net operating loss carryforwards that expire in varying amounts through fiscal year ended September 30, 2028. In Brazil, the Company has net
operating losses totaling $15,303 as of September 30, 2008, which have an indefinite carryforward period.

Research and development costs, shipping and handling costs and advertising costs

Research and development costs not recoverable under contractual arrangements are charged to selling, general and administrative
expense as incurred. Approximately $17,500, $16,400 and $15,300 in 2008, 2007 and 2006, respectively, was incurred on such research and development.

Selling,
general and administrative expenses include shipping and handling costs of $37,700 in 2008, $38,900 in 2007 and $39,200 in 2006 and advertising costs, which are expensed as
incurred, of $17,800 in 2008, $17,500 in 2007 and $16,900 in 2006.

Accrued liabilities

Accrued liabilities include payroll and other employee benefits of $27,992 and $22,500 at September 30, 2008 and 2007,
respectively. In connection with certain acquisitions, the Company has recorded contingent consideration of $79 and $59 at September 30, 2008 and 2007, respectively, included in accrued
liabilities.

Warranty liability

The Company offers to its customers warranties against product defects for periods primarily ranging from six months to three years,
with certain products having a limited lifetime warranty, depending on the specific product and terms of the customer purchase agreement. The Company's typical warranties require it to repair or
replace the defective products during the warranty period at no cost to the customer. At the time the product revenue is recognized, the Company records a liability for estimated costs under its
warranties, which costs are estimated based on historical experience. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. While the
Company believes that its estimated liability for product warranties is adequate, the estimated liability for the product warranties could differ materially from future actual warranty costs.

48

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Changes
in the Company's warranty liability at September 30, included in accrued liabilities, were as follows:

2008

2007Balance, beginning of period

$
7,868

$
5,908Warranties issued and changes in estimated pre-existing warranties


898


4,692Actual warranty costs incurred


(3,438
)

(2,732
)Balance, end of period

$
5,328

$
7,868


Other liabilities

Other liabilities included pension liabilities of $37,100 and $42,500 at September 30, 2008 and 2007, respectively. In
connection with certain acquisitions, the Company has recorded contingent consideration of $3,461 and $6,038 at September 30, 2008 and 2007, respectively, included in other liabilities.

Earnings per share (EPS)

Basic EPS is calculated by dividing income available to common shareholders by the weighted average number of shares of Common Stock
outstanding during the period. Diluted EPS is calculated by dividing income available to common shareholders by the weighted average number of shares of Common Stock outstanding plus additional common
shares that could be issued in connection with potentially dilutive securities. Management determined that the rights offering (Note 4) contained a bonus element to existing shareholders that
required the Company to adjust the shares used in the computation of basic and fully-diluted weighted-average shares outstanding for all periods presented. Basic and diluted EPS from continuing
operations for the years ended September 30, 2008, 2007 and 2006 were determined using the following information:

2008

2007

2006Income from continuing operations available to common stockholders

$
88

$
28,165

$
45,856Weighted-average shares outstandingbasic EPS


32,667,019


32,404,954


32,388,451Incremental shares from stock-based compensation


169,129


930,179


1,234,429Incremental shares from 4% convertible notes





21,782


123,612Weighted average shares outstandingdiluted EPS


32,836,148


33,356,915


33,746,492


At
September 30, 2008, 2007 and 2006, and during the years then ended, there were outstanding stock options whose exercise prices were higher than the average market values for
the respective periods. These options are anti-dilutive and were excluded from the computation of EPS. The weighted

49

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

average
anti-dilutive options outstanding for the years ended September 30, 2008, 2007 and 2006 were 979,966, 633,350 and 187,000, respectively.

Restructuring and other related charges

As a result of the downturn in the residential housing market and the impact on the Garage Doors segment, the Company initiated plans
to restructure its operations. This restructuring program includes workforce reductions, closure or consolidation of excess facilities and other charges. The Company began its restructuring initiative
in the latter part of fiscal 2007 with the closure of its Tempe, AZ manufacturing facility.

The
restructuring activities resulted in costs incurred primarily for (1) workforce reduction of approximately 370 employees across certain business functions and operating
locations and (2) abandoned or excess facilities relating to lease terminations and non-cancelable lease costs. To determine the lease loss, which is the Company's loss after its
cost recovery efforts from subleasing such facilities, certain estimates were made related to the (1) time period over which the relevant building would remain vacant, (2) sublease
terms, and (3) sublease rates, including common area charges.

A
summary of the restructuring and other related charges recognized for the years ended September 30, 2008 and 2007 are as follows:

Workforce
Reduction

Excess
Facilities

Other
Exit Costs

TotalAmounts incurred in:Year ended September 30, 2007

$
677

$
922

$
902

$
2,501Year ended September 30, 2008

$
647

$
(11
)
$
1,974

$
2,610


At
September 30, 2008, the accrued liability associated with the restructuring and other related charges consisted of the following:

Workforce Reduction

Excess Facilities

Other Exit Costs

TotalFiscal 2007:Accrued liability at October 1, 2006

$


$


$


$
Charges


677


922


902


2,501Payments


(38
)

(195
)

(725
)

(958
)Accrued liability at September 30, 2007


639


727


177


1,543Charges


647


(11
)

1,974


2,610Payments


(1,286
)

(485
)

(2,151
)

(3,922
)Accrued liability at September 30, 2008

$


$
231

$


$
231


The
remaining accrual as of September 30, 2008 is expected to be paid during fiscal 2009. The restructuring and other related charges are included in the line item "Restructuring
and other related charges" in the consolidated statements of operations.

50

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Adoption of new accounting pronouncements

In February 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 155, "Accounting for Certain Hybrid Financial Instrumentsan amendment of Financial Accounting Standards SFAS No. 133 and 140." SFAS No. 155 allows companies to
elect to measure at fair value entire financial instruments containing embedded derivatives that would otherwise have to be accounted for separately. It also requires companies to identify interests
in securitized financial assets that are freestanding derivatives or contain embedded derivatives that would have to be accounted for separately, clarifies which interest- and
principal-only strips are subject to SFAS No. 133, and amends SFAS No. 140 to revise the conditions of a qualifying special purpose entity due to the new requirement to
identify whether interests in securitized financial assets are freestanding derivatives or contain embedded derivatives. SFAS No. 155 was effective for the Company for all financial instruments
acquired, issued or subject to a remeasurement event after October 1, 2007. The adoption of SFAS 155 did not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.

In
March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assetsan amendment of SFAS No. 140." SFAS No. 156 requires the
recognition of a servicing asset or liability each time a company undertakes an obligation to service a financial asset in certain situations. It requires all separately recognized servicing assets
and liabilities to be initially measured at fair value, if practical. SFAS No. 156 was effective for the Compnay on October 1, 2007. The adoption of SFAS 156 did not have a
material effect on the Company's consolidated financial position, results of operations or cash flows.

In
June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance with SFAS 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN 48 was effective for the Company in its first quarter of fiscal 2008. As such, the Company adopted FIN 48 on
October 1, 2007. The cumulative effect of adopting FIN 48 resulted in a favorable adjustment to retained earnings of approximately $4,669 and had no effect on the Company's consolidated
results of operations.

Effect of newly issued but not yet effective accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB
issued FASB Staff Position No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement Under Statement 13" ("FSP 157-1") and FASB Staff Position No. 157-2, "Effective Date of
FASB Statement No. 157" ("FSP 157-2"). FSP 157-1 amends SFAS 157 to exclude various accounting pronouncements that address fair value measurements
for purposes of lease classification or measurement under Statement 13, with the exception of assets or liabilities assumed in a business combination that are required to be measured at fair
value under SFAS 141 or SFAS 141(R). In October 2008, the FASB

51

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

issued
FASB Staff Position No. 157-3 ("FSP 157-3") which clarifies the application of SFAS 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-1 is effective upon the adoption of
SFAS 157. FSP 157-2 defers the effective date of SFAS 157 to the Company's fiscal years beginning October 1, 2009 for all nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of SFAS 157 are effective for
the Company's fiscal years beginning October 1, 2008 for financial assets and financial liabilities. The Company does not believe that the adoption of SFAS 157 and
FSP 157-1 will have a material effect on its consolidated financial position, results of operations or cash flows. The Company is currently evaluating the impact that the adoption
of FSP 157-2 may have on its consolidated financial position, results of operations or cash flows.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities, Including an amendment of FASB Statement No. 115"
("SFAS 159"). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value.
SFAS 159 is effective for the Company as of October 1, 2008. The Company does not believe that the adoption of SFAS 159 will have a material effect on its consolidated financial
position, results of operations or cash flows.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"). The purpose of issuing the statement is to replace current guidance in
SFAS 141 to better represent the economic value of a business combination transaction. The changes to be effected with SFAS 141R from the current guidance include, but are not limited
to: (1) acquisition costs will be recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition will be considered part of the
liabilities acquired measured at their fair value; all other contingencies will be part of the liabilities acquired measured at their fair value only if it is more likely than not that they meet the
definition of a liability; (3) contingent consideration based on the outcome
of future events will be recognized and measured at the time of the acquisition; (4) business combinations achieved in stages (step acquisitions) will need to recognize the identifiable assets
and liabilities, as well as noncontrolling interests, in the acquiree, at the full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total
acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree) will require
that excess to be recognized as a gain attributable to the acquirer. The Company does anticipate that the adoption of SFAS 141R will have an impact on the way in which business combinations
will be accounted for compared to current practice. SFAS 141R will be effective for any business combinations that occur after October 1, 2009.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51" ("SFAS 160").
SFAS 160 was issued to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way, that is, as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS 160 is effective for the Company as of October 1, 2009. The Company
does not believe that the adoption of SFAS 160 will have a material effect on its consolidated financial position, results of operations or cash flows.

52

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan Amendment of FASB Statement 133" which enhances
required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and
related hedged items are accounted for under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities"; and (c) derivative instruments and related hedged
items affect an entity's financial position, financial performance and cash flows. Although early adoption is encouraged, SFAS 161 is effective for the Company as of October 1, 2009. The
Company does not believe that the adoption of SFAS 161 will have a material effect on its consolidated financial position, results of operations or cash flows.

In
April 2008, the FASB issued FASB Staff Position No. 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3").
FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions that are used to determine the useful life of a recognized intangible asset
under SFAS No. 142, "Goodwill and Other Intangible Assets", and requires enhanced related disclosures. FSP 142-3 must be applied prospectively to all intangible assets
acquired as of and subsequent to fiscal years beginning after December 15, 2008, the Company's fiscal year 2010. The Company is currently in the process of determining the effect, if any, that
the adoption of FSP 142-3 may have on its consolidated financial position, results of operations or cash flows.

In
May 2008, the FASB issued Staff Position APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)" ("APB 14-1") to clarify that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by
paragraph 12 of APB Opinion No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants". Additionally, APB 14-1 specifies that issuers of
such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. APB 14-1 is effective for the Company as of October 1, 2009. The Company is currently evaluating the impact that the adoption of
APB 14-1 may have on its consolidated financial position, results of operations or cash flows.

NOTE 2DISCONTINUED OPERATIONS

As a result of the downturn in the residential housing market and the impact on the Installation Services segment, the Company's management initiated a plan
during the second quarter of fiscal 2008 to exit certain markets within the Installation Services segment through the sale or disposition of business units. As part of the decision to exit certain
markets, the Company closed three units of the Installation Services segment in the second quarter of fiscal 2008.

Subsequently,
during the third quarter of fiscal 2008, the Company's Board of Directors approved a plan to exit all other operating activities of the Installation Services segment in
2008, with the exception of two units which were merged into the Garage Doors segment. As part of this plan, the Company closed one additional unit during the third quarter of fiscal 2008, sold nine
units to one buyer in the third quarter of fiscal 2008 and sold its two remaining units in Phoenix and Las Vegas in the fourth quarter of fiscal 2008. The plan met the criteria for discontinued
operations classification in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Operating results of substantially all of the Installation Services segment have been reported as discontinued operations in the consolidated statements of

53

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 2DISCONTINUED OPERATIONS (Continued)

operations
for all periods presented and the Installation Services segment is excluded from segment reporting.

The
following amounts related to the Installation Services segment have been segregated from the Company's continuing operations and are reported as assets and liabilities of
discontinued operations in the consolidated balance sheets:

September 30, 2008

September 30, 2007Current

Long-term

Current

Long-termAssets of discontinued operations:Accounts receivable

$
3,414

$


$
38,007

$
Inventories








17,813


Prepaid expenses and other current assets


6,081





6,364


Property and equipment








3,217


Goodwill











6,339Intangible and other assets





8,346


641


10,239Total assets of discontinued operations

$
9,495

$
8,346

$
66,042

$
16,578Liabilities of discontinued operations:Accounts payable

$
340

$


$
6,317

$
Accrued liabilities


14,577





10,970


Other liabilities





10,048





6,449Total liabilities of discontinued operations

$
14,917

$
10,048

$
17,287

$
6,449


Net
sales of the Installation Services' operating units classified as discontinued operations were approximately $109,400, $250,900 and $308,800 for fiscal 2008, 2007 and 2006,
respectively. Disposal costs related to the Installation Services segment included in its operating results were approximately $43,100 for fiscal 2008.

In
January 2007, the Installation Services segment acquired a kitchen cabinet installation business for approximately $17,000 plus potential performance-based payments over a
three-year period. The Company recorded $6.3 million in goodwill and $5.4 million in other intangible assets, including $4.1 million in amortizable customer
relationship intangible assets. Such amounts were written-off in fiscal 2008.

NOTE 3NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT

At September 30, 2008 and 2007, the Company had short-term notes payable of $779 and $1,871, respectively, principally in connection with its
foreign operations. The average interest rate of outstanding short-term debt was 14.7% and 13.6% at September 30, 2008 and 2007, respectively.

Included
in the consolidated balance sheet at September 30, 2008 under property, plant and equipment are cost and accumulated depreciation subject to capitalized leases of $10,450
and $979, respectively, and included in other assets are restricted cash and deferred interest charges of $4,521 and $333, respectively. At September 30, 2007, the amounts were $10,450 and
$691, respectively, and included in other assets are restricted cash and deferred interest charges of $4,625 and $359,

54

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 3NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT (Continued)

respectively.
The capitalized leases carry interest rates from 5.04% to 5.85% and mature from 2009 through 2022.

The
present value of the net minimum payments on capitalized leases as of September 30, 2008 is as follows:

Fiscal years ending September 30:2009

$
1,5362010


1,5822011


1,4352012


1,4382013


1,432Thereafter


11,632Total minimum lease payments


19,055Less amount representing interest


(5,085
)Present value of net minimum lease payments


13,970Current portion


(862
)Capitalized lease obligations, less current portion

$
13,108


Long-term
debt at September 30 consisted of the following:

2008

20074% convertible subordinated notes

$
130,000

$
130,000Notes payable to banksrevolving credit


78,364


76,000Capital leasereal estate


13,698


14,290Real estate mortgages


8,175


8,577ESOP loan


1,880


1,667Other


292


425232,409


230,959Less: current portion


(1,479
)

(1,521
)$
230,930

$
229,438


The
Company has outstanding $130,000 of 4% convertible subordinated notes due 2023 (the "Notes"). Holders may convert the Notes at a conversion price of $22.41 per share, as adjusted
pursuant to the rights offering (see Note 5) and subject to possible further adjustment, as defined, which is equal to a conversion rate of approximately 44.6229 shares per $1 principal amount
of Notes. The Notes are convertible (1) when the market price of the Company's Common Stock is more than 150%, as amended, of the conversion price, (2) if the Company has called the
notes for redemption, (3) if, during a 5-day trading period, the trading price of the Notes falls below certain thresholds, or (4) upon the occurrence of specified corporate
transactions. Upon conversion, the Company had the option of delivering cash or a combination of cash and shares of Common Stock in exchange for tendered Notes. The Company has irrevocably elected to
pay Noteholders at least $1 in cash for each $1 principal amount of Notes presented for conversion. The excess of the value of the Company's

55

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 3NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT (Continued)

Common
Stock that would have been issuable upon conversion over the cash delivered will be paid to Noteholders in shares of the Company's Common Stock.

The
Company may redeem the Notes on or after July 26, 2010, for cash, at their principal amount plus accrued interest. Holders of the Notes may require the Company to repurchase
all or a portion of their Notes on July 18, 2010, 2013 and 2018, as well as upon a change in control.

In
October 2008, the Company purchased $35,500 face value of the Notes from certain Noteholders for $28,400. The Company expects to record a pre-tax gain from the early
extinguishment of debt of approximately $7,000 in the first quarter of fiscal 2009.

In
December 2006, the Company and a subsidiary modified their existing senior secured multicurrency revolving credit facility (the "Amended and Restated Credit Agreement"), executed in
December 2005, increasing the facility to provide up to $175,000 and extending its remaining term to five years. As part of the modification, the Company expanded and utilized the multicurrency option
to refinance short-term notes payable and terminated revolving credit facilities available to the Company's European operations. Commitments under the credit agreement could be increased
by $50,000 under certain circumstances upon request of the Company. The agreement contained certain covenants including a consolidated leverage ratio, a consolidated fixed charges ratio and minimum
consolidated net worth. Borrowings under the credit agreement bore interest (6.29% at September 30, 2007) at rates based upon LIBOR or the prime rate and were collateralized by stock of a
subsidiary of the Company and the net assets, which aggregated approximately $465,000 at September 30, 2007.

In
March 2008, Telephonics Corporation ("Telephonics"), a wholly-owned subsidiary of the Company, entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent,
and the lenders party thereto, pursuant to which the lenders agreed to provide a five-year, revolving credit facility of $100,000 (the "Telephonics Credit Agreement"). Commitments under
the Telephonics Credit Agreement may be increased by up to an additional $50,000 under certain circumstances. Borrowings under the Telephonics Credit Agreement bear interest (4.31% at
September 30, 2008) at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of Telephonics and the stock of Telephonics' subsidiaries pursuant to a Guarantee
and Collateral Agreement made by Gritel Holding Co., Inc., a subsidiary of the Company newly-formed at the time and the parent company of Telephonics, and Telephonics in favor of the
lenders. The Telephonics Credit Agreement contains certain restrictive and financial covenants. Upon the occurrence of certain events of default specified in the Telephonics Credit Agreement, amounts
due under the Telephonics Credit Agreement may be declared immediately due and payable. Proceeds of a $50,000 initial draw under this facility, together with internal cash of the Company, were used to
repay $62,500 of outstanding debt under the Company's Amended and Restated Credit Agreement, at which time such Amended and Restated Credit Agreement was terminated. At September 30, 2008,
$44,500 was outstanding under the Telephonics Credit Agreement and $51,472 was available for borrowing. Telephonics was in compliance with all of its financial covenants under the Telephonics Credit
Agreement at September 30, 2008.

In
June 2008, Clopay Building Products Company, Inc. ("BPC") and Clopay Plastic Products Company, Inc. ("PPC"), each a wholly-owned subsidiary of the Company, entered into
a credit agreement for their domestic operations with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide a
five-year, senior secured revolving credit facility of $100,000 (the "Clopay Credit Agreement"). Availability under the credit

56

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 3NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT (Continued)

facility
is based upon certain eligible accounts receivable, inventory, cash and cash equivalents and property, plant and equipment. Commitments under the Clopay Credit Agreement may be increased by
up to an additional $50,000 under certain circumstances. Borrowings under the Clopay Credit
Agreement bear interest (6.0% at September 30, 2008) at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of BPC and PPC and the stock of their
subsidiaries. The Clopay Credit Agreement contains certain restrictive and financial covenants, certain of which are only subject to compliance if borrowing availability falls below a certain level.
Upon the occurrence of certain events of default specified in the Clopay Credit Agreement, amounts due under the agreement may be declared immediately due and payable. Proceeds of a $33,000 initial
draw under this facility were primarily used to finance existing maturing lease obligations. At September 30, 2008, $33,900 was outstanding under the Clopay Credit Agreement and $42,914 was
available for borrowing. BPC and PPC were in compliance with all of their financial covenants under the Clopay Credit Agreement at September 30, 2008.

The
Telephonics Credit Agreement and the Clopay Credit Agreement include various sublimits for standby letters of credit. At September 30, 2008, there were approximately $17,000
of aggregate standby letters of credit outstanding under these credit facilities.

In
October 2006, a subsidiary of the Company entered into a capital lease in the amount of $14,290 for real estate it occupies in Troy, Ohio. Approximately $10,000 was used to acquire
the building and the remaining approximately $4,300 was restricted for improvements. The lease matures in 2021, bears interest at a fixed rate of 5.06%, is secured by a mortgage on the real estate and
is guaranteed by the Company.

Real
estate mortgages bear interest at rates from 6.3% to 6.6% with maturities extending through 2016 and are collateralized by real property whose carrying value at September 30,
2008 aggregated approximately $11,900.

The
Company's Employee Stock Ownership Plan ("ESOP") has a loan agreement guaranteed by the Company, the proceeds of which were used to purchase equity securities of the Company.
Outstanding borrowings of the ESOP have maturities extending through 2012, as amended (see below), bear interest at rates (4.46% at September 30, 2008 and 6.49% at September 30, 2007)
based upon the prime rate or LIBOR and are guaranteed by the Company. In addition, the ESOP had a $5,000 line of credit that expired on October 31, 2008. In September 2008, $630 was drawn under
the ESOP line of credit to purchase equity securities associated with the rights offering and was outstanding at September 30, 2008. In October 2008, the remaining balance of the available ESOP
line of credit was drawn for the purpose of purchasing additional equity securities in the Company. In accordance with the terms of the ESOP line of credit agreement, the $5,000 outstanding at
October 31, 2008 was refinanced along with the balance of the then outstanding ESOP loan amount of $1,250. The new ESOP loan provides for quarterly payments of principal and interest through
September 2012, at which time the balance of the loan of approximately $3,900 will be payable. The $630 outstanding on the ESOP line of credit at September 30, 2008 has been classified as
long-term debt in the accompanying consolidated balance sheet at that date.

57

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 3NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT (Continued)

The
following are the maturities of long-term debt outstanding at September 30, 2008:

2009

$
1,4792010(1)


131,5942011


1,5182012


4,7102013


79,772Thereafter


13,336$
232,409






NOTE 4SHAREHOLDERS' EQUITY

In August 2008, the Company's Board of Directors authorized a 20,000,000 share Common Stock rights offering to its shareholders in order to raise equity capital
for general corporate purposes and to fund future growth. The rights had an exercise price of $8.50 per share. In conjunction with the rights offering, GS Direct, L.L.C., an affiliate of Goldman,
Sachs & Co. ("GS Direct"), agreed to back stop the rights offering by purchasing, on the same terms, any and all shares not subscribed through the exercise of rights. GS Direct also
agreed to purchase additional shares of common stock at the rights offering price if it did not acquire a minimum of 10,000,000 shares of Common Stock as a result of its back stop commitment. In
September 2008, the Company received $241,344 of gross proceeds from the first closing of its rights offering and the closing of the related investments by GS Direct and by the Company's Chief
Executive Officer, and issued 28,393,323 shares of its Common Stock. An additional $5,274 of rights offering proceeds, which are reflected as a component of prepaid expenses and other current assets
in the consolidated balance sheet at September 30, 2008, were received in October 2008 and the Company issued 620,486 shares of Common Stock in connection with the second and final closing of
the rights offering, after which the rights offering was terminated.

The
Company accounts for compensation costs relating to share-based payment transactions recognized in the financial statements based upon fair value. Options for an aggregate of
1,375,000 shares of Common Stock were previously authorized for grant under the Company's outstanding stock option plans at September 30, 2008. As of September 30, 2008, options for
69,447 shares remain available for future grants under such plans. The plans provide for the granting of options at an exercise price of not less than 100% of the fair market value per share at date
of grant. Options generally expire ten years after date of grant and become exercisable in equal installments over two to four years.

58

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 4SHAREHOLDERS' EQUITY (Continued)

Transactions
under these stock options plans are as follows:

(in thousands, except per share data)

Number
of Shares
under
Option

Weighted
Average
Exercise
PriceOutstanding at October 1, 2005


3,618,940

$
12.62Granted


122,500

$
28.06Exercised


(881,307
)
$
11.18Forfeited/expired


(39,547
)
$
19.74Outstanding at September 30, 2006


2,820,586

$
13.65Granted


10,500

$
15.92Exercised


(628,307
)
$
14.15Forfeited/expired


(30,506
)
$
22.05Outstanding at September 30, 2007


2,172,273

$
13.40Granted


25,000

$
14.19Exercised.




$
Forfeited/expired


(832,882
)
$
11.08Outstanding at September 30, 2008


1,364,391

$
13.76


During
2006, shareholders approved the Griffon Corporation 2006 Equity Incentive Plan ("Incentive Plan") under which awards of performance shares, performance units, stock options, stock
appreciation rights, restricted shares and deferred shares may be granted. The shareholders approved an amendment to the Incentive Plan in 2008. The maximum number of shares of common stock available
for award under the Incentive Plan is 2,000,000. The number of shares available under the Incentive Plan is reduced by a factor of two-to-one for awards other than stock
options. If the remaining shares available under the Incentive Plan at September 30, 2008 were awarded through stock options, 713,440 shares would be issued or if the remaining shares were
awarded as restricted stock, 356,720 shares would be issued.

59

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 4SHAREHOLDERS' EQUITY (Continued)

Transactions
involving stock options under the Incentive Plan are as follows:

Number
of Shares
under
Option

Weighted
Average
Exercise
PriceOutstanding at October 1, 2005




$
Granted


25,000

$
24.31Exercised




$
Forfeited/expired




$
Outstanding at September 30, 2006


25,000

$
24.31Granted


23,500

$
15.92Exercised




$
Forfeited/expired


(12,000
)
$
23.56Outstanding at September 30, 2007


36,500

$
19.26Granted




$
Exercised




$
Forfeited/expired




$
Outstanding at September 30, 2008


36,500

$
17.88


Transactions
involving restricted stock under the Incentive Plan are as follows:

Number
of Shares

Weighted
Average
Fair
ValueUnvested at October 1, 2005




$
Granted


309,326

$
23.96Fully vested




$
Forfeited/expired




$
Unvested at September30, 2006


309,326

$
23.96Granted


15,704

$
15.92Fully vested


(67,775
)
$
23.84Forfeited/expired




$
Unvested at September 30, 2007


257,255

$
23.62Granted


300,000

$
8.98Fully vested


(98,255
)
$
22.38Forfeited/expired




$
Unvested at September 30, 2008


459,000

$
14.25


Approximately
265,000 shares of restricted stock vest over five years, 250,000 shares of restricted stock vest in three years and 50,000 shares of restricted stock vest in five years.
The aggregate fair value of the 98,255 shares and 67,775 shares of restricted stock that vested during 2008 and 2007 was approximately $984 and $1,180, respectively, at the time of vesting.

60

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 4SHAREHOLDERS' EQUITY (Continued)

At
September 30, 2008, option groups outstanding and exercisable are as follows:

Outstanding OptionsRange of Exercise Prices

Number of
Options

Weighted
Average
Remaining
Life (years)

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
Value$19.49 to $26.06


319,350


6.4

$
22.48

$
$12.39 to $17.12


485,516


5.5

$
14.80

$
$7.75 to $11.14


505,550


2.8

$
8.92

$
419.4$6.12 to $6.33


90,475


1.6

$
6.25

$
250.41,400,891







$
669.8




Exercisable OptionsRange of Exercise Prices

Number of
Options

Weighted
Average
Remaining
Life (years)

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
Value$19.49 to $26.06


266,650


6.1

$
21.83

$
$12.39 to $17.12


466,391


5.3

$
14.81

$
$7.75 to $11.14


505,550


2.8

$
8.92

$
419.4$6.12 to $6.33


90,475


1.6

$
6.25

$
250.41,329,066







$
669.8


Exercisable
options of 1,329,066, 2,050,460 and 2,611,501 with weighted average exercise prices of $13.40, $12.76 and $12.81 were outstanding at September 30, 2008, 2007 and 2006,
respectively. The total intrinsic value of stock options exercised was approximately $2,665 and $11,818 in 2007 and 2006, respectively.

In
connection with the September 2008 rights offering, the Company was obligated under certain anti-dilution provisions within its stock option plans to reduce the exercise
price of the then-outstanding options and recorded stock-based compensation expense of approximately $354. Also in September 2008, in connection with an investment in conjunction with the
rights offering, the Company's Chief Executive Officer purchased 578,151 shares of Common Stock at $8.50 per share, representing a discount to the fair value of such shares at closing. The Company
recorded stock-based compensation expense related to this transaction of approximately $104. For the years ended September 30, 2008, 2007 and 2006, the Company recognized $3,327, $2,412 and
$1,711 of stock-based compensation, respectively.

At
September 30, 2008, the total compensation cost related to nonvested awards not recognized was $6,784, which is to be recognized over a weighted-average period of
2.7 years that represents the requisite service period for such awards. Compensation cost related to stock-based awards with graded vesting are amortized using the straight-line
attribution method.

The
fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model. The weighted average fair values of options granted in 2008, 2007 and
2006 were $6.89, $7.95 and $13.25, respectively, based upon the following weighted-average assumptions: expected volatility (.4 in 2008, .4 in 2007 and .365 in 2006), risk-free interest
rate (4.09% in 2008, 4.59% in 2007

61

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 4SHAREHOLDERS' EQUITY (Continued)

and
5.02% in 2006), expected life (7 years in 2008, 2007 and 2006), and expected dividend yield (0% in 2008, 2007 and 2006).

The
Company has an Outside Director Stock Award Plan (the "Outside Director Plan"), which was approved by the shareholders in 1994, under which 330,000 shares may be issued to
non-employee directors. Annually, each eligible director is awarded shares of the Company's Common Stock having a value of $10, which vests over a three-year period. For shares
issued under the Outside Director Plan, the fair market value of the shares at the date of issuance is recognized as compensation expense over the vesting period. In 2008, 2007 and 2006, 12,155, 4,680
and 5,004 shares, respectively, were issued under the Outside Director Plan.

As
of September 30, 2008, a total of approximately 2,375,227 shares of the Company's authorized Common Stock were reserved for issuance in connection with stock compensation
plans.

Two
of the Company's wholly-owned subsidiaries have loan agreements that limit dividends and advances they may pay to the parent Company. The agreements permit the payment of income
taxes, overhead and expenses, with dividends or advances in excess of these amounts being limited based on (a) with respect to the Clopay Credit Agreement, maintaining certain minimum
availability under the loan agreement or (b) with respect to the Telephonics Credit Agreement, compliance with certain conditions and limited to an annual maximum.

NOTE 5PENSION PLANS

The Company has pension plans that cover substantially all employees, most of which are defined contribution plans. Company contributions to the defined
contribution plans are generally based upon various percentages of compensation, and aggregated $9,800 in 2008, $10,300 in 2007 and $8,400 in 2006. The Company also has defined benefit pension plans
covering certain employees.

On
September 30, 2007, the Company adopted the provisions of SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"), which required the Company to recognize the funded status of its defined benefit plans in the consolidated balance sheet at
September 30, 2007, with the corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive income upon adoption represents
the net actuarial loss, prior service cost, and net transition asset remaining from the initial adoption of FASB Statement No. 87, "Employers Accounting for Pensions" ("SFAS 87"), which
were previously netted against the funded status in the consolidated balance sheet in accordance with the provisions of SFAS 87. These amounts will be subsequently recognized as net periodic
pension cost. Actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of other
comprehensive income and will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income upon adoption
of SFAS 158. SFAS 158 also requires that the measurement date be as of the balance sheet date.

62

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 5PENSION PLANS (Continued)

The
incremental effect of adopting the provisions of SFAS 158 on the Company's consolidated balance sheet at September 30, 2007 is as follows:

Prior to Adopting
SFAS 158

Effect of Adopting
SFAS 158

As ReportedAccrued pension cost

$
(18,297
)
$
18,297

$
Additional liability


(22,334
)

22,334


Liability to reflect the plans funded status





(41,326
)

(41,326
)Deferred income taxes


6,643


819


7,462Intangible asset


1,645


(1,645
)

Accumulated other comprehensive income, net


14,046


1,521


15,567


Plan
assets and benefit obligations of the defined benefit plans are as follows:

September 302008

2007Change in benefit obligationProjected benefit obligation, beginning of year

$
65,651

$
64,906Service cost


657


1,247Interest cost


4,003


3,728Actuarial gain


(7,728
)

(1,563
)Change in provisions





196Benefit payments


(3,891
)

(2,863
)Projected benefit obligation, end of year


58,692


65,651Change in plan assetsFair value of plan assets, beginning of year


24,325


21,069Actual return on plan assets


(3,851
)

3,277Contributions


3,859


2,842Benefits paid


(3,891
)

(2,863
)Fair value of plan assets, end of year


20,442


24,325Projected benefit obligation in excess of plan assets

$
(38,250
)
$
(41,326
)Balance sheet amountsCurrent liabilities

$
(4,757
)
$
(2,512
)Noncurrent liabilities

$
(33,493
)
$
(38,814
)Amounts recognized in accumulated other comprehensive income, prior to taxUnrecognized net loss

$
18,633

$
21,386Unrecognized prior service cost


1,309


1,645Unrecognized net transition asset


(1
)

(2
)Net amount recognized

$
19,941

$
23,029Accumulated benefit obligation

$
58,266

$
64,956


63

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 5PENSION PLANS (Continued)

Included in accumulated other comprehensive income at September 30, 2008 are the following amounts: net actuarial loss of $12,112, net of taxes of $6,521,
prior service cost of $851, net of taxes of $458, and net transition asset of $1, net of taxes. Included in accumulated other comprehensive income at September 30, 2007 are the following
amounts: net actuarial loss of $14,497, net of taxes of $6,889, prior service cost of $1,069, net of taxes of $576, and net transition asset of $1, net of taxes of $1. The estimated net actuarial loss
and prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension cost over the next fiscal year are $921 and $337, respectively. The deferred tax
expense related to minimum pension liability adjustments included in other comprehensive income totaled approximately $1,100 and $1,600 in 2008 and 2007, respectively.

Net
periodic pension cost for the defined benefit plans was as follows:

2008

2007

2006Service cost

$
657

$
1,247

$
1,355Interest cost


4,003


3,728


3,454Expected return on plan assets


(2,081
)

(1,794
)

(1,498
)Amortization of net actuarial loss


956


2,510


3,001Amortization of prior service cost


337


322


322Amortization of transition asset


(1
)

(1
)

(1
)$
3,871

$
6,012

$
6,633


The
following actuarial assumptions were used in determining the present value of the projected benefit obligation for the Company's defined benefit pension plans:

2008

2007

2006Discount rate

7.50%

6.30%

5.85%Expected return on plan assets

8.50%

8.50%

8.50%Compensation rate increase

3.50%-5.00%

3.00%-3.50%

3.00%-3.50%


The
Company expects to contribute approximately $4,600 to the defined benefits plans in fiscal 2009 and expected benefit payments under the defined benefit plans at September 30,
2008 are $4,757 in 2009, $4,759 in 2010, $4,813 in 2011, $4,888 in 2012, $5,094 in 2013 and $25,726 in the years 2014 to 2018.

At
September 30, 2008 and 2007, the asset allocation percentage of the defined benefit plans was as follows:

Percentage of
Plan AssetsTarget
Allocation
2008Asset Category

2008

2007Equity securities


65
%

58
%

65
%Debt securities


28
%

33
%

28
%Other


7
%

9
%

7
%Totals


100
%

100
%

100
%


The
Company's investment strategy for defined benefit plan assets is designed to achieve long-term investment objectives and minimize related investment risk. The investment
strategy is reviewed

64

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 5PENSION PLANS (Continued)

annually.
Equity securities consist principally of domestic stocks and debt securities consist of investment grade bonds. The expected rate of return on plan assets is based on the defined benefit
plans' asset allocations, investment strategy and consultation with third-party investment managers.

The
Company has an ESOP that covers substantially all employees. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the
shares transferred and are treated as outstanding in earnings per share calculations. Compensation expense under the ESOP was $338 in 2008, $740 in 2007 and $849 in 2006. The cost of shares held by
the ESOP and not yet allocated to employees is reported as a reduction of shareholders' equity. In connection with the rights offering in September 2008, the ESOP purchased 74.1 shares underlying
rights associated with the unallocated shares of the ESOP. The ESOP shares as of September 30 were as follows:

2008

2007Allocated shares


2,319,502


2,285,992Unallocated shares


190,859


116,7592,510,361


2,402,751


NOTE 6COMMITMENTS AND CONTINGENCIES

(a)   The
Company and its subsidiaries rent real property and equipment under operating leases expiring at various dates. Most of the real property leases have escalation
clauses related to increases in real property taxes. Rent expense for all operating leases totaled approximately $32,400, $31,600 and $31,300 in 2008, 2007 and 2006, respectively. The Company has
engaged in sale-leaseback transactions for various manufacturing equipment used at selected domestic locations. Net proceeds received from these transactions for the years ended
September 30, 2008, 2007 and 2006 were $4,791, $1,751, and $6,474, respectively. The leases have been classified as operating leases in accordance with SFAS No. 13, "Accounting for
Leases."

Aggregate
minimum rental commitments under noncancellable operating leases at September 30, 2008 consisted of the following:

2009

$
22,0002010


15,0002011


11,0002012


8,0002013


5,000Thereafter


1,000$
62,000


(b)   On
March 16, 2008, Harvey R. Blau notified the Company of his intention to retire from his position as Chief Executive Officer of the Company effective as of
April 1, 2008. Mr. Blau remains as non-executive Chairman of the Board of Directors and, pursuant to the terms of his employment agreement, a consultant to the Company.

On
March 16, 2008, the Company entered into an Employment Agreement (the "Employment Agreement") with Ronald J. Kramer, pursuant to which he became the Chief Executive Officer of
the

65

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 6COMMITMENTS AND CONTINGENCIES (Continued)

Company
effective April 1, 2008 (the "Commencement Date"). Mr. Kramer has been a director of the Company since 1993 and Vice Chairman of the Board since November 2003, which positions he
has retained. Mr. Kramer is the son-in-law of Mr. Blau.

Pursuant
to the terms of the Employment Agreement, Mr. Kramer's term of employment with the Company will continue for three years from the date on which either party gives notice
that the term of employment will not be further renewed (the "Term"). During the Term, Mr. Kramer will receive an annual base salary of $775 per annum, subject to cost of living and
discretionary increases. Mr. Kramer is entitled to receive a guaranteed bonus of $581 in respect of the Company's 2008 fiscal year, and shall be entitled to an annual bonus of between 0% and
250% of his base salary, with a target bonus of 150% of base salary, for fiscal years thereafter based upon achievement of performance objectives. Mr. Kramer shall also be entitled to receive
severance payments upon termination of his employment under certain circumstances, as more fully set forth in the Employment Agreement.

On
the Commencement Date, Mr. Kramer received a restricted stock grant of 250,000 shares of Common Stock. In accordance with the terms of the Employment Agreement,
Mr. Kramer received a restricted stock grant of 75,000 shares of Common Stock in October 2008 and shall receive a restricted stock grant of 25,000 shares of Common Stock in October 2009, each
grant vesting three years after the Commencement Date. Also, in October 2008, Mr. Kramer received a ten-year option to purchase 350,000 shares of Common Stock at an exercise price
of $20 per share, vesting in three equal installments on each anniversary of the Commencement Date. All equity awards shall immediately vest in the event of termination of Mr. Kramer's
employment without Cause, if he leaves for Good Reason, or upon his death, Disability or a Change in Control (as such terms are defined in the Employment Agreement).

(c)   Simultaneously
with the closing of the September 2008 rights offering and related investment by GS Direct, two employees of GS Direct joined the Company's Board of
Directors. In addition to GS Direct's role in providing a back stop to the rights offering and its investment in the Company, the Company has, from time to time, retained GS Direct, or an affiliated
entity of GS Direct, for financial advisory services. The Company has paid or incurred expenses of approximately $2,432 and $250 with GS Direct, or affiliated entities or persons, during the years
ended September 30, 2008 and 2007, respectively. There were no expenses related to GS Direct in fiscal 2006. The fiscal 2008 expenses relate to a commitment fee of $850 and the reimbursement of
GS Direct's expenses of $1,582 related to services rendered in connection with the 2008 rights offering.

(d)Department of Environmental Conservation of New York State ("DEC"), with ISC Properties, Inc.Lightron Corporation
("Lightron"), a wholly-owned subsidiary of the Company, once conducted operations at a location in Peekskill in the Town of Cortlandt, New York owned by ISC Properties, Inc., a wholly-owned
subsidiary of the Company (the "Peekskill Site"). ISC Properties, Inc. sold the Peekskill Site in November 1982.

Subsequently,
the Company was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other
chemicals common to Lightron's prior plating operations. ISC Properties, Inc. then entered into a consent order with the DEC in 1996 (the "Consent Order") to perform a remedial investigation
and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC Properties, Inc. was required by the DEC to conduct a supplemental
remedial investigation under the Consent Order. In or about August 2004, a report was submitted to the DEC of the findings under the supplemental remedial investigation. Subsequently, an addendum to
the supplemental remediation

66

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 6COMMITMENTS AND CONTINGENCIES (Continued)

investigation
was negotiated and conducted and a further report submitted to the DEC. A soil vapor investigation report that contained the findings of a soil vapor investigation conducted at the Site
under the Consent Order was submitted in July 2007 to, and accepted in September 2007 by, the DEC. Thereafter, ISC Properties, Inc. submitted to the DEC for its approval, a final draft of all
of the Remedial Investigation work performed in connection with, and as required by, the Consent Order. In accordance with the soil vapor investigation work that ISC Properties, Inc. had
performed at the Peekskill Site under the Consent Order, ISC Properties, Inc., per the request of the DEC, proposed to, and did undertake to perform one additional one day sampling event in
March 2008 in accordance with an approved soil vapor work plan, and a soil vapor investigation report was submitted to DEC in May 2008.

In
March 2008, DEC requested additional, supplemental sampling at the Site, and a Supplemental Investigation Work Plan was submitted to the DEC in April 2008. Based on comments received
from the DEC in July 2008, a revised Supplemental Investigation Work Plan was submitted on July 30, 2008 to, was approved subsequently by, the DEC. The work that was required to be performed in
accordance with the Supplemental Investigation Work Plan was performed in October 2008 and a report was prepared for submission to the DEC. No feasibility study has yet been performed pursuant to the
Consent Order.

In
addition, the Company is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of
business. Management believes, based on facts presently known to it, that the resolution of the matter above and such other matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

NOTE 7QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly results of operations for the years ended September 30, 2008 and 2007 are as follows:

Quarters EndedSeptember 30,
2008

June 30,
2008

March 31,
2008

December 31,
2007Net sales

$
353,665

$
322,267

$
298,571

$
294,802Gross profit

$
77,409

$
73,380

$
57,450

$
64,758Income (loss) from continuing operations(2)(3)

$
(6,661
)
$
9,356

$
(4,146
)
$
1,539Loss from discontinued operations


(1,318
)

(19,156
)

(17,223
)

(2,894
)Net loss

$
(7,979
)
$
(9,800
)
$
(21,369
)
$
(1,355
)Earnings (loss) per share of common stock(1):Basic:Continuing operations

$
(.20
)
$
.29

$
(.13
)
$
.05Discontinued operations


(.04
)

(.59
)

(.53
)

(.09
)$
(.24
)
$
(.30
)
$
(.66
)
$
(.04
)Diluted:Continuing operations

$
(.20
)
$
.29

$
(.13
)
$
.05Discontinued operations


(.04
)

(.59
)

(.53
)

(.09
)$
(.24
)
$
(.30
)
$
(.66
)
$
(.04
)


67

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 7QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Continued)



Quarters EndedSeptember 30,
2007

June 30,
2007

March 31,
2007

December 31,
2006Net sales

$
333,410

$
337,194

$
330,727

$
364,398Gross profit

$
78,811

$
72,958

$
66,844

$
75,943Income from continuing operations(3)

$
10,043

$
6,145

$
3,056

$
8,921Loss from discontinued operations


(1,081
)

(1,748
)

(2,801
)

(456
)Net income

$
8,962

$
4,397

$
255

$
8,465Earnings (loss) per share of common stock(1):Basic:Continuing operations

$
.31

$
.19

$
.09

$
.28Discontinued operations


(.03
)

(.05
)

(.08
)

(.02
)$
.28

$
.14

$
.01

$
.26Diluted:Continuing operations

$
.31

$
.18

$
.09

$
.27Discontinued operations


(.03
)

(.05
)

(.08
)

(.02
)$
.28

$
.13

$
.01

$
.25


---

NOTE 8BUSINESS SEGMENTS

The Company's reportable business segments are as followsElectronic Information and Communication Systems (communication and information systems for
government and commercial
markets); Garage Doors (manufacture and sale of residential and commercial/industrial garage doors, and related products); and Specialty Plastic Films (manufacture and sale of plastic films and film
laminates for baby diapers, adult incontinence care products, disposable surgical and patient care products and plastic packaging). The Company's reportable segments are distinguished from each other
by types of products and services offered, classes of customers, production and distribution methods, and separate management. The Company's Installation Services segment (sale and installation of
building products primarily for new construction, such as garage doors, garage door openers, manufactured fireplaces and surrounds, appliances, flooring and cabinets) has been reflected as
discontinued operations in the consolidated financial statements for all periods presented and, accordingly, is excluded from segment disclosures (see Note 2).

The
Company evaluates performance and allocates resources based on operating results before interest income or expense, income taxes and certain nonrecurring items of income or expense.
The accounting policies of the reportable segments are the same as those described in the summary of

68

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 8BUSINESS SEGMENTS (Continued)

significant
accounting policies, including the use of the percentage of completion method of accounting for revenue recognition on long-term contracts by the Electronic Information and
Communication Systems segment (see Note 1). Intersegment sales are based on prices negotiated between the segments, and intersegment sales and profits are not eliminated in evaluating
performance of a segment.

Information
on the Company's business segments is as follows:

Electronic
Information and
Communication
Systems

Garage
Doors

Specialty
Plastic
Films

TotalsRevenues from external customers2008

$
366,288

$
435,321

$
467,696

$
1,269,3052007


472,549


486,606


406,574


1,365,7292006


387,437


558,925


381,373


1,327,735Sales to discontinued segments2008

$


$
8,484

$


$
8,4842007





13,886





13,8862006





16,668





16,668Segment profit (loss)2008

$
32,737

$
(17,444
)
$
20,620

$
35,9132007


45,888


7,117


17,263


70,2682006


39,609


42,493


15,450


97,552Segment assets2008

$
251,016

$
197,740

$
356,635

$
805,3912007


241,639


217,744


351,314


810,6972006


263,912


213,876


322,479


800,267Segment capital expenditures2008

$
5,862

$
8,227

$
38,718

$
52,8072007


5,428


15,596


8,634


29,6582006


7,827


22,408


10,564


40,799Depreciation and amortization expense2008

$
6,753

$
12,071

$
22,638

$
41,4622007


5,800


11,041


20,986


37,8272006


5,409


7,703


18,264


31,376


69

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 8BUSINESS SEGMENTS (Continued)

Following
are reconciliations of segment profit, assets, capital expenditures and depreciation and amortization expense to amounts reported in the consolidated financial statements:

2008

2007

2006ProfitProfit for all segments

$
35,913

$
70,268

$
97,552Unallocated amounts


(21,969
)

(18,721
)

(19,695
)Interest expense and other, net


(9,562
)

(10,111
)

(8,712
)Income from continuing operations before income taxes

$
4,382

$
41,436

$
69,145AssetsTotal for all segments

$
805,391

$
810,697

$
800,267Assets of discontinued operations


17,841


76,495


77,528Unallocated amounts


348,440


74,465


52,363Intersegment eliminations


(106
)

(1,799
)

(1,944
)Total consolidated assets

$
1,171,566

$
959,858

$
928,214Capital expendituresTotal for all segments

$
52,807

$
29,658

$
40,799Unallocated amounts


309


79


854Total consolidated capital expenditures

$
53,116

$
29,737

$
41,653Depreciation and amortization expenseTotal for all segments

$
41,462

$
37,827

$
31,376Unallocated amounts


2,273


2,529


2,598Total consolidated depreciation and amortization

$
43,735

$
40,356

$
33,974


Consolidated
revenues from continuing operations, based on the customers' locations, and property, plant and equipment attributed to the United States and all other countries are as
follows:

2008

2007

2006Revenues by geographic areaUnited States

$
853,692

$
978,220

$
977,625Germany


110,900


83,446


74,886United Kingdom


23,276


33,893


21,392Canada


64,378


57,759


59,797Brazil


44,019


34,526


26,621All other countries


173,040


177,885


167,414Consolidated net sales from continuing operations

$
1,269,305

$
1,365,729

$
1,327,735Property, plant and equipment by geographic areaUnited States

$
151,733

$
128,595

$
129,610Germany


67,800


79,132


79,493All other countries


19,470


22,505


19,477Consolidated property, plant and equipment

$
239,003

$
230,232

$
228,580


70

---



GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except share and per share data)

NOTE 8BUSINESS SEGMENTS (Continued)

Sales
to a customer of the Specialty Plastic Films segment were approximately $262,000 in 2008, $218,000 in 2007 and $226,000 in 2006. Sales to the United States Government and its
agencies, either as a prime contractor or subcontractor, aggregated approximately $257,000 in 2008, $375,000 in 2007 and $282,000 in 2006, all of which are included in the Electronic Information and
Communication Systems segment. Unallocated amounts include general corporate expenses and assets, which consist mainly of cash and cash equivalents, investments, and other assets not attributable to
any reportable segment.

71

---





Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.    Controls and Procedures

Evaluation and Disclosure Controls and Procedures

The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of the design and operation of the Company's disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by
the SEC's rules and forms and such
information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The
Company's internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company's financial statements for external reporting in accordance with accounting principles generally accepted in the United States of
America. Management evaluates the effectiveness of the Company's internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal ControlIntegrated Framework. Management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial
Officer, assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2008 and concluded that it is effective.

The
Company's independent registered public accounting firm, Grant Thornton LLP, has audited the effectiveness of the Company's internal control over financial reporting as of
September 30, 2008, and has expressed an unqualified opinion in their report which appears in this Annual Report on Form 10-K.

Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation referred
to above that occurred during the fourth quarter of the fiscal year ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.

Limitations on the Effectiveness Controls

The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the
objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a Company have been detected. The
Company's disclosure controls and procedures are
designed to provide reasonable assurance of achieving their objectives and the Company's Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are
effective at the "reasonable assurance" level.

72

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Shareholders Griffon Corporation

We have audited Griffon Corporation (a Delaware corporation) and subsidiaries' (the "Company") internal control over financial reporting as of
September 30, 2008, based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2008, based on criteria established in Internal ControlIntegrated
Frameworkissued by COSO.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Griffon Corporation and
subsidiaries as of September 30, 2008 and 2007, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended
September 30, 2008 and our report dated December 11, 2008 expressed an unqualified opinion thereon.

/s/
Grant Thornton LLP

Melville,
New York
December 11, 2008

73

---





Item 9B.    Other Information

None

PART III

The information required by Part III (Items 10, 11, 12, 13 and 14) is incorporated by reference to the Company's
definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in February, 2009, to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended September 30, 2008. Information relating to the executive officers of the Registrant appears under Item 1 of this report.

PART IV

Item 15.    Exhibits and Financial Statement Schedules

The following consolidated financial statements of Griffon Corporation and subsidiaries are included in Item 8:

Page(a)

1.

Financial StatementsConsolidated Balance Sheets at September 30, 2008 and 2007


35Consolidated Statements of Operations for the Years Ended September 30, 2008, 2007 and 2006


36Consolidated Statements of Cash Flows for the Years Ended September 30, 2008, 2007 and 2006


37Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2008, 2007 and 2006


38Notes to Consolidated Financial Statements


392.

SchedulesI    Condensed Financial Information of Registrant


S-1II    Valuation and Qualifying Accounts


S-2Schedules other than those listed are omitted because they are not applicable or because the information required is included in the consolidated financial statements.3.

Exhibits




| |     |  |                                                                                                                                                                                                                                                                                         
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3.1 |  | Restated Certificate of Incorporation (Exhibit 3.1 of Annual Report on Form 10-K for the year ended September 30, 1995 (Commission File No. 1-06620))                                                                                                                                   
| | 3.2 |  | Amended and restated By-laws (Exhibit 3 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))                                                                                                                                                                  
| | 4.1 |  | Credit Agreement, dated as of December 15, 2005, among Griffon Corporation, Telephonics Corporation, the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 of Current
Report on Form 8-K dated December 15, 2005 (Commission File No. 1-06620))

74

---



| |       |  |                                                                                                                                                                                                                                                                                                    
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 4.2   |  | Pledge Agreement, dated as of December 15, 2005, between Griffon Corporation and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.2 of Current Report on Form 8-K dated December 15, 2005
(Commission File No. 1-06620))                                                             
| | 4.3   |  | Indenture, dated as of June 22, 2004, between the Registrant and American Stock Transfer and Trust Company, including the form of note. (Exhibit 4.3 to Annual Report on Form 10-K for the year ended
September 30, 2005 (Commission File No. 1-06620))                                            
| | 4.4   |  | Irrevocable Election Letter related to Indenture dated as of June 22, 2004 between the Registrant and American Stock Transfer and Trust Company (Exhibit 4.4 to Annual Report on Form 10-K for the year
ended September 30, 2005 (Commission File No. 1-06620))                                    
| | 10.1  |  | Employment Agreement dated as of July 1, 2001 between the Registrant and Harvey R. Blau (Exhibit 10.1 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))                                                                                                               
| | 10.2  |  | Employment Agreement dated as of July 1, 2001 between the Registrant and Robert Balemian (Exhibit 10.2 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))                                                                                                              
| | 10.3  |  | Form of Trust Agreement between the Registrant and Wachovia Bank, National Association, as Trustee, dated October 2, 2006, relating to the Company's Employee Stock Ownership Plan (Exhibit 10.3 to Annual
Report on Form 10-K for the year ended September 30, 2005 (Commission File No. 1-06620))
| | 10.4  |  | 1992 Non-Qualified Stock Option Plan (Exhibit 10.10 of Annual Report on Form 10-K for the year ended September 30, 1993 (Commission File No. 1-06620))                                                                                                                                             
| | 10.5  |  | Non-Qualified Stock Option Plan (Exhibit 10.12 of Annual Report on Form 10-K for the year ended September 30, 1998 (Commission File No. 1-06620))                                                                                                                                                  
| | 10.6  |  | Form of Indemnification Agreement between the Registrant and its officers and directors (Exhibit 28 to Current Report on Form 8-K dated May 3, 1990 (Commission File No. 1-06620))                                                                                                                 
| | 10.7  |  | Outside Director Stock Award Plan (Exhibit 4 of Form S-8 Registration Statement No. 33-52319)                                                                                                                                                                                                      
| | 10.8  |  | 1997 Stock Option Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-21503)                                                                                                                                                                                                              
| | 10.9  |  | 2001 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-67760)                                                                                                                                                                                                              
| | 10.10 |  | Senior Management Incentive Compensation Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-62319)                                                                                                                                                                                       
| | 10.11 |  | 1998 Employee and Director Stock Option Plan, as amended (Exhibit 4.1 of Form S-8 Registration Statement No. 333-102742)                                                                                                                                                                           
| | 10.12 |  | 1998 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-62319)                                                                                                                                                                                                              
| | 10.13 |  | Amendment to Employment Agreement between the Registrant and Harvey R. Blau dated August 8, 2003 (Exhibit 10.1 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (Commission File
No. 1-06620))                                                                                 
| | 10.14 |  | Non-Qualified Stock Option Agreement (Exhibit 4.1 of Form S-8 Registration Statement No. 333-131737)                                                                                                                                                                                               
| | 10.15 |  | Griffon Corporation 2006 Equity Incentive Plan (Exhibit 4.3 of Form S-8 Registration Statement No. 333-133833) , as amended (Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended
December 31, 2007 (Commission File No. 1-06620))                                                   
| | 10.16 |  | Amendment No. 2 to Employment Agreement, dated July 18, 2006 between the Registrant and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K dated July 18, 2006 (Commission File
No. 1-06620))                                                                                              

75

---



| |       |  |                                                                                                                                                                                                                                                                                                                                    
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10.17 |  | Severance agreement, dated July 18, 2006 between the Registrant and Patrick Alesia (Exhibit 10.2 to Current Report on Form 8-K dated July 18, 2006 (Commission File No. 1-06620))                                                                                                                                                  
| | 10.18 |  | Supplemental Executive Retirement Plan as amended through July 18, 2006 (Exhibit 10.3 to Current Report on Form 8-K dated July 18, 2006 (Commission File No. 1-06620))                                                                                                                                                             
| | 10.19 |  | Griffon Corporation 2006 Performance Bonus Plan (Exhibit 10.2 to Current Report on Form 8-K dated February 3, 2006 (Commission File No. 1-06620))                                                                                                                                                                                  
| | 10.20 |  | Form of Restricted Stock Award Agreement under the Griffon Corporation 2006 Equity Incentive Plan (Exhibit 10.3 to Current Report on Form 8-K/A dated February 3, 2006 (Commission File No. 1-06620))                                                                                                                              
| | 10.21 |  | Employment Agreement dated as of March 1, 2005 between the Registrant and Eric Edelstein (Exhibit 10.1 to Current Report on Form 8-K dated March 1, 2005 (Commission File No. 1-06620))                                                                                                                                            
| | 10.22 |  | Amended and Restated Credit Agreement, dated December 20, 2006, among Griffon Corporation, the Lender party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 to Current Report on
Form 8-K dated December 20, 2006 (Commission File No. 1-06620))                                                      
| | 10.23 |  | Amendment No. 3 to Employment Agreement, dated August 3, 2007, between the Registrant and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))                                                                                                                           
| | 10.24 |  | Amendment No. 1 to the Severance Agreement, dated August 3, 2007, between the Registrant and Patrick L. Alesia (Exhibit 10.2 to Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))                                                                                                                     
| | 10.25 |  | Amendment No. 1 to the Amended and Restated Supplemental Executive Retirement Plan dated August 3, 2007 (Exhibit 10.3 to the Current Report on Form 8-K dated August 3, 2006 (Commission File
No. 1-06620))                                                                                                                        
| | 10.26 |  | Severance Agreement, dated November 2, 2007, between the Registrant and Franklin H. Smith, Jr. (Exhibit 10.1 to the Current Report on Form 8-K dated November 2, 2007 (Commission File
No. 1-06620))                                                                                                                               
| | 10.27 |  | Investment Agreement, dated August 7, 2008, between Griffon Corporation and GS Direct, L.L.C. (Exhibit 10.1 to the Current Report on Form 8-K dated August 13, 2008 (Commission File No. 1-06620))                                                                                                                                 
| | 10.28 |  | Credit Agreement, dated as of June 24, 2008, among Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent, among others (Exhibit 10.1 to the Current Report on Form 8-K dated June 27, 2008 (Commission File No. 1-06620))
| | 10.29 |  | Credit Agreement, dated as of March 31, 2008, among Telephonics Corporation, Gritel Holding Co., Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1
to the Current Report on Form 8-K dated April 4, 2008 (Commission File No. 1-06620))                                         
| | 10.30 |  | Guarantee and Collateral Agreement, dated as of March 31, 2008, made by Gritel Holding Co., Inc. and Telephonics Corporation in favor of JPMorgan Chase Bank, N.A. (Exhibit 10.2 to the Current
Report on Form 8-K dated April 4, 2008).                                                                                           
| | 10.31 |  | Employment Agreement, dated March 16, 2008, between the Registrant and Ronald J. Kramer. (Exhibit 10.1 to the Current Report on Form 8-K dated March 19, 2008 (Commission File No. 1-06620))                                                                                                                                       

76

---



| |       |  |                                                                                                                                                                                                                                                                                                                                                                 
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10.32 |  | Amendment No. 1, dated as of December 31, 2007, to the Amended and Restated Credit Agreement, dated December 20, 2006, among Griffon Corporation, Telephonics Corporation, the Lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 to the Current Report on Form 8-K dated January 4, 2008 (Commission File No. 1-06620))
| | 10.33 |  | 2006 Equity Incentive Plan, as amended (Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended December 31, 2007 (Commission File No. 1-06620))                                                                                                                                                                                                     
| | 14    |  | Code of Ethics for Senior Financial Officers (Exhibit 14 to Annual Report on Form 10-K for the year ended September 30, 2003 (Commission File No. 1-06620))                                                                                                                                                                                                     
| | 21    |  | The following lists the Company's significant subsidiaries all of which are wholly-owned by the Company. The names of certain subsidiaries which do not, when considered in the aggregate, constitute a significant
subsidiary, have been omitted.                                                                                                              



Name of Subsidiary

State of
IncorporationClopay Corporation


DelawareTelephonics Corporation


Delaware




| |       |  |                                                                                                                                                                                                                                                   
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 23*   |  | Consent of Grant Thornton LLP                                                                                                                                                                                                                     
| | 31.1* |  | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act                                                                                                                                                            
| | 31.2* |  | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act                                                                                                                                                            
| | 32*   |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 USC Section 1350.                                                                                                                                     
| | 21    |  | The following lists the Company's significant subsidiaries all of which are wholly-owned by the Company. The names of certain subsidiaries which do not, when considered in the aggregate, constitute a significant
subsidiary, have been omitted.

---

The
following undertakings are incorporated into the Company's Registration Statements on Form S-8 (Registration Nos. 33-39090,
33-62966, 33-52319, 333-21503, 333-62319, 333-84409, 333-67760, 333-88422, 333-102742,
333-131737, 333-133833 and 333-149811).

(a)   The
undersigned registrant hereby undertakes:



77

---





Provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.



(b)   The
undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c)   Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by
a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

78

---



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on the 11th day of December 2008.

GRIFFON CORPORATIONBy:

/s/ RONALD J. KRAMER Ronald J. Kramer, Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 11, 2008 by the following persons in the capacities indicated:

/s/ HARVEY R. BLAU Harvey R. Blau

Chairman of the Board/s/ RONALD J. KRAMER Ronald J. Kramer

Chief Executive Officer (Principal Executive Officer)/s/ PATRICK L. ALESIA Patrick L. Alesia

Chief Financial Officer, Vice President, Secretary and Treasurer (Principal Financial and Accounting Officer)/s/ HENRY A. ALPERT Henry A. Alpert

Director/s/ BERTRAND M. BELL Bertrand M. Bell

Director/s/ GERALD J. CARDINALE Gerald J. Cardinale

Director/s/ BLAINE V. FOGG Blaine V. Fogg

Director/s/ BRADLEY J. GROSS Bradley J. Gross

Director/s/ ROBERT HARRISON Robert Harrison

Director


79

---



/s/ CLARENCE A. HILL, JR. Clarence A. Hill, Jr.

Director/s/ DONALD J. KUTYNA Donald J. Kutyna

Director/s/ JAMES A. MITAROTONDA James A. Mitarotonda

Director/s/ MARTIN S. SUSSMAN Martin S. Sussman

Director/s/ WILLIAM H. WALDORF William H. Waldorf

Director/s/ JOSEPH J. WHALEN Joseph J. Whalen

Director


80

---





GRIFFON CORPORATION        SCHEDULE ICONDENSED FINANCIAL INFORMATION OF REGISTRANT        BALANCE SHEETS

September 30,(in thousands)

2008

2007ASSETSCurrent Assets:Cash and cash equivalents

$
247,554

$
3,635Prepaid expenses and other current assets


8,171


16,093Income taxes receivable


16,629


Total current assets


272,354


19,728Property, plant & equipment at cost, less accumulated depreciation


745


925Investment in subsidiaries


569,469


705,315Other assets


14,192


11,372$
856,760

$
737,340LIABILITIES AND SHAREHOLDERS' EQUITYCurrent Liabilities:Current portion of long-term debt

$
188

$
417Accounts payable and accrued liabilities


16,666


18,389Income taxes payable





1,800Total current liabilities


16,854


20,606Long-term liabilities:Convertible subordinated notes


130,000


130,000Notes payable to banks





76,000Other


50,226


43,795180,226


249,795Shareholders' equity


659,680


466,939$
856,760

$
737,340


S-1

---





GRIFFON CORPORATION        SCHEDULE ICONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)        STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30,

(in thousands)

2008

2007

2006Costs and Expenses:General and administrative expenses

$
21,155

$
16,094

$
16,576Interest expense and other, net


4,994


6,543


5,80426,149


22,637


22,380Loss before credit for federal income taxes and equity in net income of subsidiaries


(26,149
)

(22,637
)

(22,380
)Credit for federal income taxes resulting from tax sharing arrangement with subsidiaries


(5,963
)

(7,300
)

(9,118
)Loss before equity in net income of subsidiaries


(20,186
)

(15,337
)

(13,262
)Equity in income of subsidiaries


20,274


43,502


59,118Income from continuing operations before discontinued operations


88


28,165


45,856Equity in income (loss) of discontinued operations


(40,591
)

(6,086
)

5,930Net income (loss)

$
(40,503
)
$
22,079

$
51,786


S-1a

---





GRIFFON CORPORATION        SCHEDULE ICONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)        STATEMENTS OF CASH FLOWS        FOR THE YEARS
ENDED SEPTEMBER 30,

(in thousands)

2008

2007

2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
(40,503
)
$
22,079

$
51,786Adjustments to reconcile net income to net cash provided (used) by operating activitiesDeferred income taxes


4,483


(5,708
)

(1,514
)Stock-based compensation


3,327


2,412


1,711Write-off of unamortized deferred financing costs


495





Equity in income of subsidiaries


(20,274
)

(43,502
)

(59,118
)Equity in (income) loss of discontinued operations


40,591


6,086


(5,930
)Change in assets and liabilities(Increase) decrease in prepaid expenses and other assets


(120
)

204


272Increase (decrease) in accounts payable, accrued liabilities and income taxes payable


4,060


(9,178
)

565Other changes, net


(4,036
)

7,725


3,18128,526


(41,961
)

(60,833
)Net cash provided by (used in) operating activities


(11,977
)

(19,882
)

(9,047
)CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, plant and equipment


(46
)

(67
)

(12
)Advances from (to) subsidiaries


42,000


(6,500
)

(6,550
)Distributions from subsidiaries


60,000


22,000


Net cash provided by (used in) investing activities


101,954


15,433


(6,562
)CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of common stock pursuant to rights offering


241,344





Purchase of treasury shares


(579
)

(4,355
)

(19,811
)Proceeds from issuance of long-term debt


630


33,601


74,000Payment of long-term debt


(76,417
)

(27,186
)

(65,416
)Financing costs


(7,111
)




Exercise of stock options





2,588


2,639Capital contribution


(4,067
)




Tax benefit from exercise of stock options


3


1,346


4,136Other, net


139


653


(179
)Net cash provided by (used in) financing activities


153,942


6,647


(4,631
)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


243,919


2,198


(20,240
)CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR


3,635


1,437


21,677CASH AND CASH EQUIVALENTS AT END OF YEAR

$
247,554

$
3,635

$
1,437


S-1b

---





GRIFFON CORPORATION AND SUBSIDIARIES        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS        FOR THE YEARS ENDED SEPTEMBER 30, 2008, 2007 AND 2006        (in thousands)

Additions

DeductionsDescription

Balance at
Beginning
Of Period

Charged to
Profit and
Loss

Charged to
Other
Accounts

Accounts
Written
Off

Other

Balance at
End
of PeriodFOR THE YEAR ENDED SEPTEMBER 30, 2008(1):Allowance for doubtful accounts:Bad debts

$
3,836

$
854

$
148

$
1,163

$


$
3,675Sales returns and allowances


2,501


(156
)

18


429





1,934$
6,337

$
698

$
166

$
1,592

$


$
5,609Inventory valuation

$
9,489

$
652

$


$
1,314

$
(56
)
$
8,883FOR THE YEAR ENDED SEPTEMBER 30, 2007(1):Allowance for doubtful accounts:Bad debts

$
3,684

$
649

$
473

$
970

$


$
3,836Sales returns and allowances


2,623


3,478


148


3,748





2,501$
6,307

$
4,127

$
621

$
4,718

$


$
6,337Inventory valuation

$
8,149

$
1,901

$


$
801

$
(240
)
$
9,489FOR THE YEAR ENDED SEPTEMBER 30, 2006(1):Allowance for doubtful accounts:Bad debts

$
3,846

$
863

$
388

$
1,172

$
241

$
3,684Sales returns and allowances


2,052


2,735


75


2,239





2,623$
5,898

$
3,598

$
463

$
3,411

$
241

$
6,307Inventory valuation

$
6,654

$
3,126

$


$
1,713

$
(82
)
$
8,149


---

S-2

---





EXHIBIT INDEX

| |       |  |                                                                                                                                                                                                                                                                                                    
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3.1   |  | Restated Certificate of Incorporation (Exhibit 3.1 of Annual Report on Form 10-K for the year ended September 30, 1995 (Commission File No. 1-06620))                                                                                                                                              
| | 3.2   |  | Amended and restated By-laws (Exhibit 3 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))                                                                                                                                                                             
| | 4.1   |  | Credit Agreement, dated as of December 15, 2005, among Griffon Corporation, Telephonics Corporation, the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 of Current
Report on Form 8-K dated December 15, 2005 (Commission File No. 1-06620))           
| | 4.2   |  | Pledge Agreement, dated as of December 15, 2005, between Griffon Corporation and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.2 of Current Report on Form 8-K dated December 15,
2005 (Commission File No. 1-06620))                                                             
| | 4.3   |  | Indenture, dated as of June 22, 2004, between the Registrant and American Stock Transfer and Trust Company, including the form of note. (Exhibit 4.3 to Annual Report on Form 10-K for the year ended
September 30, 2005 (Commission File No. 1-06620))                                            
| | 4.4   |  | Irrevocable Election Letter related to Indenture dated as of June 22, 2004 between the Registrant and American Stock Transfer and Trust Company (Exhibit 4.4 to Annual Report on Form 10-K for the year
ended September 30, 2005 (Commission File No. 1-06620))                                    
| | 10.1  |  | Employment Agreement dated as of July 1, 2001 between the Registrant and Harvey R. Blau (Exhibit 10.1 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))                                                                                                               
| | 10.2  |  | Employment Agreement dated as of July 1, 2001 between the Registrant and Robert Balemian (Exhibit 10.2 of Current Report on Form 8-K dated May 2, 2001 (Commission File No. 1-06620))                                                                                                              
| | 10.3  |  | Form of Trust Agreement between the Registrant and Wachovia Bank, National Association, as Trustee, dated October 2, 2006, relating to the Company's Employee Stock Ownership Plan (Exhibit 10.3 to Annual
Report on Form 10-K for the year ended September 30, 2005 (Commission File No. 1-06620))
| | 10.4  |  | 1992 Non-Qualified Stock Option Plan (Exhibit 10.10 of Annual Report on Form 10-K for the year ended September 30, 1993 (Commission File No. 1-06620))                                                                                                                                             
| | 10.5  |  | Non-Qualified Stock Option Plan (Exhibit 10.12 of Annual Report on Form 10-K for the year ended September 30, 1998 (Commission File No. 1-06620))                                                                                                                                                  
| | 10.6  |  | Form of Indemnification Agreement between the Registrant and its officers and directors (Exhibit 28 to Current Report on Form 8-K dated May 3, 1990 (Commission File No. 1-06620))                                                                                                                 
| | 10.7  |  | Outside Director Stock Award Plan (Exhibit 4 of Form S-8 Registration Statement No. 33-52319)                                                                                                                                                                                                      
| | 10.8  |  | 1997 Stock Option Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-21503)                                                                                                                                                                                                              
| | 10.9  |  | 2001 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-67760)                                                                                                                                                                                                              
| | 10.10 |  | Senior Management Incentive Compensation Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-62319)                                                                                                                                                                                       
| | 10.11 |  | 1998 Employee and Director Stock Option Plan, as amended (Exhibit 4.1 of Form S-8 Registration Statement No. 333-102742)                                                                                                                                                                           
| | 10.12 |  | 1998 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-62319)                                                                                                                                                                                                              
| | 10.13 |  | Amendment to Employment Agreement between the Registrant and Harvey R. Blau dated August 8, 2003 (Exhibit 10.1 of Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (Commission File
No. 1-06620))                                                                                 

---



| |       |  |                                                                                                                                                                                                                                                                                                                                    
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10.14 |  | Non-Qualified Stock Option Agreement (Exhibit 4.1 of Form S-8 Registration Statement No. 333-131737)                                                                                                                                                                                                                               
| | 10.15 |  | Griffon Corporation 2006 Equity Incentive Plan (Exhibit 4.3 of Form S-8 Registration Statement No. 333-133833), as amended (Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended
December 31, 2007 (Commission File No. 1-06620))                                                                                    
| | 10.16 |  | Amendment No. 2 to Employment Agreement, dated July 18, 2006 between the Registrant and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K dated July 18, 2006 (Commission File
No. 1-06620))                                                                                                                              
| | 10.17 |  | Severance agreement, dated July 18, 2006 between the Registrant and Patrick Alesia (Exhibit 10.2 to Current Report on Form 8-K dated July 18, 2006 (Commission File No. 1-06620))                                                                                                                                                  
| | 10.18 |  | Supplemental Executive Retirement Plan as amended through July 18, 2006 (Exhibit 10.3 to Current Report on Form 8-K dated July 18, 2006 (Commission File No. 1-06620))                                                                                                                                                             
| | 10.19 |  | Griffon Corporation 2006 Performance Bonus Plan (Exhibit 10.2 to Current Report on Form 8-K dated February 3, 2006 (Commission File No. 1-06620))                                                                                                                                                                                  
| | 10.20 |  | Form of Restricted Stock Award Agreement under the Griffon Corporation 2006 Equity Incentive Plan (Exhibit 10.3 to Current Report on Form 8-K/A dated February 3, 2006 (Commission File No. 1-06620))                                                                                                                              
| | 10.21 |  | Employment Agreement dated as of March 1, 2005 between the Registrant and Eric Edelstein (Exhibit 10.1 to Current Report on Form 8-K dated March 1, 2005 (Commission File No. 1-06620))                                                                                                                                            
| | 10.22 |  | Amended and Restated Credit Agreement, dated December 20, 2006, among Griffon Corporation, the Lender party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 to Current Report on
Form 8-K dated December 20, 2006)                                                                                    
| | 10.23 |  | Amendment No. 3 to Employment Agreement, dated August 3, 2007, between the Registrant and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K dated August 3, 2006)                                                                                                                                                         
| | 10.24 |  | Amendment No. 1 to the Severance Agreement, dated August 3, 2007, between the Registrant and Patrick L. Alesia (Exhibit 10.2 to Current Report on Form 8-K dated August 3, 2006)                                                                                                                                                   
| | 10.25 |  | Amendment No. 1 to the Amended and Restated Supplemental Executive Retirement Plan dated August 3, 2007 (Exhibit 10.3 to the Current Report on Form 8-K dated August 3, 2006)                                                                                                                                                      
| | 10.26 |  | Severance Agreement, dated November 2, 2007, between the Registrant and Franklin H. Smith, Jr. (Exhibit 10.1 to the Current Report on Form 8-K dated November 2, 2007)                                                                                                                                                             
| | 10.27 |  | Investment Agreement, dated August 7, 2008, between Griffon Corporation and GS Direct, L.L.C. (Exhibit 10.1 to the Current Report on Form 8-K dated August 13, 2008 (Commission File No. 1-06620))                                                                                                                                 
| | 10.28 |  | Credit Agreement, dated as of June 24, 2008, among Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent, among others (Exhibit 10.1 to the Current Report on Form 8-K dated June 27, 2008 (Commission File No. 1-06620))
| | 10.29 |  | Credit Agreement, dated as of March 31, 2008, among Telephonics Corporation, Gritel Holding Co., Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1
to the Current Report on Form 8-K dated April 4, 2008 (Commission File No. 1-06620))                                         
| | 10.30 |  | Guarantee and Collateral Agreement, dated as of March 31, 2008, made by Gritel Holding Co., Inc. and Telephonics Corporation in favor of JPMorgan Chase Bank, N.A. (Exhibit 10.2 to the Current
Report on Form 8-K dated April 4, 2008).                                                                                           

---



| |       |  |                                                                                                                                                                                                                                                                                                                                                                 
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10.31 |  | Employment Agreement, dated March 16, 2008, between the Registrant and Ronald J. Kramer. (Exhibit 10.1 to the Current Report on Form 8-K dated March 19, 2008 (Commission File No. 1-06620))                                                                                                                                                                    
| | 10.32 |  | Amendment No. 1, dated as of December 31, 2007, to the Amended and Restated Credit Agreement, dated December 20, 2006, among Griffon Corporation, Telephonics Corporation, the Lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 to the Current Report on Form 8-K dated January 4, 2008 (Commission File No. 1-06620))
| | 10.33 |  | 2006 Equity Incentive Plan, as amended (Exhibit 10.1 of Quarterly Report on Form 10-Q for the period ended December 31, 2007 (Commission File No. 1-06620))                                                                                                                                                                                                     
| | 10.27 |  | Investment Agreement, dated August 7, 2008, between Griffon Corporation and GS Direct, L.L.C. (Exhibit 10.1 to the Current Report on Form 8-K dated August 13, 2008).                                                                                                                                                                                           
| | 10.28 |  | Credit Agreement, dated as of June 24, 2008, among Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent, among others (Exhibit 10.1 to the Current Report on Form 8-K dated June 27, 2008).                                                          
| | 10.29 |  | Credit Agreement, dated as of March 31, 2008, among Telephonics Corporation, Gritel Holding Co., Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1
to the Current Report on Form 8-K dated April 4, 2008).                                                                                                   
| | 10.30 |  | Guarantee and Collateral Agreement, dated as of March 31, 2008, made by Gritel Holding Co., Inc. and Telephonics Corporation in favor of JPMorgan Chase Bank, N.A. (Exhibit 10.2 to the Current
Report on Form 8-K dated April 4, 2008).                                                                                                                        
| | 10.31 |  | Employment Agreement, dated March 16, 2008, between the Registrant and Ronald J. Kramer. (Exhibit 10.1 to the Current Report on Form 8-K dated March 19, 2008).                                                                                                                                                                                                 
| | 10.32 |  | Amendment No. 1, dated as of December 31, 2007, to the Amended and Restated Credit Agreement, dated December 20, 2006, among Griffon Corporation, Telephonics Corporation, the Lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent (Exhibit 10.1 to the Current Report on Form 8-K dated January 4, 2008).                             
| | 14    |  | Code of Ethics for Senior Financial Officers (Exhibit 14 to Annual Report on Form 10-K for the year ended September 30, 2003 (Commission File No. 1-06620))                                                                                                                                                                                                     
| | 21    |  | The following lists the Company's significant subsidiaries all of which are wholly-owned by the Company. The names of certain subsidiaries which do not, when considered in the aggregate, constitute a significant
subsidiary, have been omitted.                                                                                                              



Name of Subsidiary

State of
IncorporationClopay Corporation


DelawareTelephonics Corporation


Delaware




| |       |  |                                                                                                              
| | ----- |  | -------------------------------------------------------------------------------------------------------------
| | 23*   |  | Consent of Grant Thornton LLP                                                                                
| | 31.1* |  | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act                       
| | 31.2* |  | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act                       
| | 32*   |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 USC Section 1350.

---

---



QuickLinks